Jensen Associates provides marketing services for a number of small manufacturing firms. Jensen receives a commission...

Jensen Associates provides marketing services for a number of small manufacturing firms. Jensen receives a commission of 10 percent of sales. Operating costs are as follows:

Unit-level costs	$ 0.04 per sales dollar
Sales-level costs	$ 300 per sales order
Customer-level costs	$ 900 per customer per year
Facility-level costs	$ 60,000 per year

(a) Determine the minimum order size in sales dollars for Jensen to break even on an order.

(b) Assuming an average customer places four orders per year, determine the minimum annual sales required to break even on a customer.

(d) Assuming Jensen currently serves 100 customers, with each placing an average of four orders per year, determine the minimum annual sales required to break even.

(e) What is the average order size in (d)?

Solutions

Expert Solution

Solution :

a. minimum order size in sales dollars for Jensen to break even on an order :

Sales level cost / contribution margin ratio = 300 / 0.06* = 5000.

*(0.10 - 0.04)

b. minimum annual sales required to break even on a customer. :

[(sales level cost X Avg customer order per year) + customer level cost] / Contribution margin ratio

= [( 300 x 4) + 900 ] / 0.06

= 35000

c. average order size in (b) = 35000 / 4 = 8750

d. Assuming Jensen currently serves 100 customers, with each placing an average of four orders per year, the minimum annual sales required to break even wil be as follows :

PARTICULARS
order level cost ( 300 X 4 X 100)	120000
customer level cost (900 X 100)	90000
facility level cost	60000
Total cost	270000
Divide by Contribution margin ratio	0.06
minimum annual sales required to break even	4500000

e. average order size in (d) = 4500000 / (100 x 4 ) = 11250

ekkarill92 answered 2 years ago

Next > < Previous

Related Solutions

Nielsen Associates provides marketing services for a number of small manufacturing firms. Nielsen receives a commission...

Nielsen Associates provides marketing services for a number of small manufacturing firms. Nielsen receives a commission of 10 percent of sales. Operating costs are as follows: Unit-level costs $0.02 per sales dollar Sales-level costs $200 per sales order Customer-level costs $800 per customer per year Facility-level costs $60,000 per year (a) Determine the minimum order size in sales dollars for Nielsen to break even on an order. (b) Assuming an average customer places five orders per year, determine the minimum...

Alejandro Associates is an accounting firm that provides audit and tax services to its clients. Each...

Alejandro Associates is an accounting firm that provides audit and tax services to its clients. Each tax return is considered a "job" for the firm, just like a manufacturing company considers a customer order as a "job." Alejandro has direct costs related to Tax Return 8405 as follows: 8 hours of staff labor @ $123 per hour 6 hours of assembly labor @$168 per hour $62 of materials In addition, Alejandro Associates estimates its overhead related to the manufacture of...

The Department of Administrative Services (DAS) provides a number of services to other departments in an...

The Department of Administrative Services (DAS) provides a number of services to other departments in an Australian State Government. These services include HR and personnel management, payroll, contract tendering management, contractor management, and procurement. These services have all been provided from the Department’s own data centres. As a result of a change in Government policy, DAS is moving to a “Shared Services” approach. This approach will mean that DAS will centralise a number of services for the whole of Government...

Honey is a large marketing consultancy that provides a range of services including developing marketing campaigns,...

Honey is a large marketing consultancy that provides a range of services including developing marketing campaigns, designing web pages, managing media relations and so on. There are approximately 300 professional staff working in departments such as advertising and media relations and 600 support staff in areas such as administration and information technology (IT). Honey operates from a large office block in the centre of a major city. In common with similar agencies, Honey is successful because it can offer clients...

H is a large marketing consultancy that provides a range of services including developing marketing campaigns,...

H is a large marketing consultancy that provides a range of services including developing marketing campaigns, designing web pages, managing media relations and so on. There are approximately 300 professional staff working in departments such as advertising and media relations and 600 support staff in areas such as administration and information technology (IT). Honey operates from a large office block in the centre of a major city. In common with similar agencies, H is successful because it can offer clients...

TanTinTun & Associates is a medium-size marketing organization specializing in professional promotion and publicity services. The...

TanTinTun & Associates is a medium-size marketing organization specializing in professional promotion and publicity services. The firm's top management believes that it provides quality service as evidenced by the high level of customer satisfaction. The organization consists of three departments: print media, audio media, and visual media, each of which has a senior director in charge. The company employs 80 clerical staff who are paid on an hourly basis and 30 professional staff who are salaried. A large majority of...

Services Marketing Differs from Product Marketing Two national firms, the Prestige Hotel and Pro Fitness chains,...

Services Marketing Differs from Product Marketing Two national firms, the Prestige Hotel and Pro Fitness chains, strive to deliver quality service to their customers. To do so, they address the four core differences between services and goods. In the following scenario, you will be asked to categorize statements about the customer's experiences and the firm's marketing efforts by the core difference they represent. Economies of developed countries like the United States have become increasingly dependent on services. For example, service...

The government provides many good and services to tax payers and firms. Name & Explain three...

The government provides many good and services to tax payers and firms. Name & Explain three economic reasons they do this. Support answer with evidence.

Western Technical Services is a small engineering firm in Colorado that provides a variety of technical...

Western Technical Services is a small engineering firm in Colorado that provides a variety of technical and drafting services. Western Technical Services employs three engineers, five drafters, and three secretaries. Western has developed a leading reputation in the design of low-capacity and medium-capacity heat exchangers for electrical equipment. A large backlog of jobs has accumulated, and the firm has decided it must complete the back orders. The firm wants to maximize the number of jobs finished each day to eliminate...

Part A MelSwin is an accounting consultancy firm that provides its services to small, medium and...

Part A MelSwin is an accounting consultancy firm that provides its services to small, medium and large sized clients. The client size is determined by the number of employees as follows: Small sized clients Medium sized clients Large sized clients Number of employees <50 50 to 100 >100 MelSwin uses a traditional overhead cost driver of “data analysis hours” to estimate the cost of providing its services. Although MelSwin does not operate in a competitive environment, the Finance Manager, Grainne,...

Subjects