Income Statement Projected Income Statement Sales Revenue $2,500,000 Variable Costs Purchases $750,000 0.3 Direct labor $600,000 0.24 $1,350,000 $1,150,000 Fixed Costs Selling $500,000 Administrative $485,000 Manufacturing Overhead $150,000 $1,135,000 Profit Dollars Percentage Calculate the Contribution Margin Calculate the Gross Margin Ratio Calculate Breakeven Sales Calculate Margin of Safety based on the 5% expected sales increase.

Here is a break-even analysis model.

Do the following two tasks.

Recall that the Break-even point is when Profit equal zero, or Revenue minus Total Cost equals zero.

Here is the Break-even formula:

Assignment 1 CVP Comprehensive Problem Gupta Travel is a charter airline service for corporate clients traveling between Atlanta and Boston. The company leases one jet aircraft and flies an average of 160 one-way trips per year. Gupta’s marketing strategy is to sell a more enjoyable travel experience than its rivals in the commercial airline industry. Gupta arranges ground transportation in Atlanta and Boston for its clients, offers a more spacious cabin with larger seats and more legroom, and serves gourmet meals on its flights. Gupta does not sell its services to individuals; rather its services are marketed directly to corporate clients. Therefore, when Gupta books a flight for a client, it is not merely selling a few seats on its aircraft. Rather, the corporate client is booking the use of the aircraft for its travel needs. Gupta uses a network of commissioned travel agents to sell its services. These agents are not employees of Gupta, and the agents receive a 20 percent commission (no fixed salary) on each flight sold on Gupta Travel. Gupta had the following income statement for the year ending December 31, 2018. Gupta Travel Income Statement For the Year Ending 12/31/2018 Sales Revenue (160 one-way flights _ $50,000 per flight) $8,000,000 Commissions Expense (20 percent of Sales Revenue) $1,600,000 Annual Lease Expense—Airplane $1,200,000 Annual Fee for Airport Ground Crew Services $900,000 Flight Crew Expense (160 one-way flights _ $1,600 per flight) $256,000 Fuel Expense (160 one-way flights _ $1,100 per flight) $176,000 Food Expense (160 one-way flights _ $900 per flight) $144,000 Ground Transportation Expense (160 one-way flights _ $250 per flight) $40,000 Other Fixed General and Administrative Expenses $180,000 Fixed Interest Expense $250,000 Net Income $ 3,254,000 (ignore tax)

(1) Prepare the contribution margin Income Statement (2) What is Gupta’s current breakeven point? (3) At the end of 2015, Gupta’s management learned that its commissioned travel agents are demanding an increase in their commission rate to 30 percent per flight for the upcoming year. As a result, Gupta’s president has decided to investigate the possibility of hiring an in-house sales staff to replace the commissioned travel agents. Gupta’s accounting department compiled the following information to be used to evaluate the cost of establishing an in-house sales department. Costs of Establishing an In-House Sales Department The accounting department estimates that Gupta would need to hire four salespeople at an average payroll cost of $85,000 per employee to cover the workload of the current travel agents. Also, in order to hire highly qualified individuals for these positions, the compensation package must include commissions. To be competitive with the industry-standard commission rate, Gupta must offer a 15 percent commission on each flight sold in addition to the salary. The cost of the in house sales department will also include travel costs and support staff. Travel and entertainment expense is expected to total $600,000 (fixed) for the year, and the annual cost of support staff positions will be fixed at $150,000. Gupta currently relies on the travel agents to sell its services. If Gupta were to replace its commissioned travel agents with an in-house sales department, then it would have to bear more of the cost of advertising its services. In order to maintain the company’s image and manage the transition from established travel agents to an inhouse sales staff, the accounting department recommends spending $550,000 (fixed) annually on advertising. (3) Use the December 31, 2018 Income Statement (with 160 flights sold) to estimate Gupta’s breakeven point in units (flights) if the company hires its own sales force and increases its advertising costs. Based on your answer, what amount of sales revenue would the company generate at this breakeven point? (4) Assume that Gupta decides not to hire its own sales force, but instead consents to give its current commissioned travel agents the raise they are demanding. How many flights must the company sell (with the new commission rate) to generate the same net income that was reported in 2018? (5) Management must choose between: (a) hiring its own sales force and (b) compensating its current network of travel agents with a higher commission rate. (i ) What is the profit formula for alternative (a), hiring an in-house sales force? (ii ) What is the profit formula for alternative (b), increasing the commission rate of the current travel agents? (iii ) At what level of sales volume (in flights) would management be indifferent between these two alternatives? (Indifference means the sales volume [units] that would produce the same profit between the alternatives.)

The Company XYZ had sales of $10,000 in 2019. The cost of goods sold was $8,000. There was no other expense or revenue in 2019. If the tax rate of the company is 40%, what will be the net income for company XYZ in 2019?

1- perpetual inventory system continually updates inventory records True Fales?

2- A company can change from lifo to fifo without notifying the internal revenue service False True?

True or False? Draw a graph to support your answer.

When unions play a decisive role in the labor market, the dead-weight loss of payroll tax is high, and the revenue generated by the tax is small.

What is the 'excess burden' of a commodity tax. Explain why optimal tax theory suggests that lump sum income taxes should be used rather than commodity taxes in order to raise revenue.

What is efficiency, and why is it so important? 2. What happens to consumer and producer surplus when the sale of a good is taxed? How does the change in consumer and producer surplus compare to the tax revenue?

A service enterprise performs services in the amount of $500 for a customer in May and receives payment in June. In which month is the $500 of revenue recognized? What is the journal entry to be made in May and the entry to be made in June?

Identify each of the following terms/phrases as either an accounting: (a) principle, (b) assumption, or (c) constraint. 1. Materiality 2. Time period 3. Benefit exceeds cost 4. Revenue recognition