8.25
CVP, shoe stores.
(20–25 min)
1
Because the unit sales level at the point of indifference would be the same for each plan, the revenue would be equal. Therefore, the unit sales level sought would be that which produces the same total costs for each plan. Let
Q
= unit sales level
a
£19.50Q + £360,000 + £81,000 = £21.00Q + £360,000
£81,000 = £1.50Q
Q
= 54,000 units
2
Commission plan
Salary plan
Sales in units
50,000 60,000 50,000 60,000 Revenues @ £30.00
£1,500,000
£1,800,000 £1,500,000 £1,800,000 Variable costs @ £21.00 and £19.50 1,050,000 1,260,000 975,000 1,170,000 Contribution margin
450,000 540,000 525,000 630,000 Fixed costs
360,000 360,000 441,000 441,000 Operating income (£)
90,000 180,000 84,000 189,000 The decision regarding the plans will depend heavily on the unit sales level that is generated by the fixed salary plan. For example, as the answer to requirement (1) shows, at identical unit sales levels in excess of 54,000 units, the fixed salary plan will always provide a more profitable final result than the commission plan.
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 5 th Edition, Instructor’s Manual © Pearson Education Limited 2012 Share with your friends: |
