Question
In: Accounting
Indicate the effect (increase, decrease, no change, or not enough information) that each of the following...
Indicate the effect (increase, decrease, no change, or not
enough information) that each of the following situations has on
break-even unit sales. If you answer “not
enough information,” list the information that you need in order to
be able to deter-mine the effect.
(a) A retail company purchases price tags to use in place of the
stickers it has used in the past.
(b) An athletic equipment store leases more retail space.
(c) A bakery increases its advertising expense
(d) A merchandiser plans to increase the selling price of its
product. To counter potential decreases in sales, the merchandiser
also plans to increase the amount of per-product commission that
the sales staff earns.
(e) An accounting firm plans to increase its billing rate per hour.
(f) A retail company has found a supplier that will provide the
same merchandise its old supplier provided, but at a lower
price.
(g) A private college in the Northwest installs air conditioning in
its dormitories. (h) A retail company reduces advertising expenses
and increases the commissions of its sales force.
(i) Instead of having its office building cleaned by a cleaning
service, a company plans to hire its own cleaning crew.
Will be rated. Thanks.
Solutions
Expert Solution
| Indicaton of effect in break even sales | ||
| Question no | answer | Reason |
| a | No change | There not changing in price of the product in the place of retails price tag they are using sticker |
| b | increase | increase the break even sales because athletic equipment store lease more retails space because of that leasing the fixed cost will increase so the break even sales also increase |
| c | increase | bakery increase the advertisement expenses so the increase in variable cost per unit the contribution will reduce per unit because that BEP will increase |
| d | No change | because of increase in selling price the counter part the sales have decreased and the increase in the commission of the sales per product. It is assumed that the contribution increased due to chang in sales price equals to decrease in sale and sales commission |
| e | Decrease | Billing rate increased means income or contribution will increase. Due to increase in contribution the BEP will decrease |
| f | Decrease | It Purchase price decreased due to thet the contribution will increase so the BEP will decrease |
| g | increase | installing the air conditions means the contribution will decrease because of the decrese in the contribution the BEP will increase |
| h | No change | the advertisement expenses decrease and the sales commisson increased it is assumed the decreased advertisement equals to increasing in sales commison so there is no change in BEP |
| i | No change | the company decrease the cleaning service cost by increasing the own cleaning crew. It is assumed that the decrease in cleaning service cost equals to incrasing in its own cleaning crew |
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