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Marginal Costing

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MOHD Salman
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3 views12 pages

Marginal Costing

Uploaded by

MOHD Salman
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Questions1

 How has the breakeven point in number


of sales tickets (Number of Customer
Orders Written) and
 Break even in sales dollars changed
from 2003, to 2004, and to 2006?
 How has the margin of safety changed?
 What caused the changes?
2003 2004 2006

Sales $8,583 $8,102 $10,711


Gross Margin $4,257 $3,970 $5,141
Sales tickets 5,341 5,316 6,897
Margin per unit $0.797 $0.747 $0.745
Fixed Cost $3,679 $3,758 $5,547
BEP (in Units) 4,616 5,031 7,446
BEP (in $ Sales) $7,418 $7,669 $11,557
Margin of Safety $1165 $433 ($846)
Question 2
 One idea that the consultant had was to reduce
prices to bring in more customers.
 If average prices were reduced ten percent (10%), and
 the number of sales tickets (unit sales) increased to
7,500,
 would the company's income be increased? With prices
reduced,
 what would be the
 new breakeven point in sales tickets and
 sales dollars?
Original Revised
Sales $10,711 $10,483
Cost of Goods sold 5,570 6,060
Gross Margin $5,141 4,423
Sales tickets 6,897 7,500
Sales per Ticket $1.553 $1.398
Cost of Goods sold/ Ticket 0.808 0.808
Margin per unit $0.745 $0.590
Fixed Cost $5,547 $5,547
BEP (in Units) 7,446 9,401
BEP (in $ Sales) $11,557 $13,147
Question 3
 Another idea that Gretchen had was to
eliminate sales commissions.
 Hallstead's was the only jewelry store in the city
that paid sales commissions,
 and although both Grandfather and Father had
insisted that commissions were one of the reasons
for their success,
 Gretchen had her doubts?
 How would the elimination of sales
commissions affect the breakeven volume?
2006 2006
Sales $10,711 $10,711
Cost of goods sold 5,570 5,570
Gross margin $5,141 $5,141
Expenses
Salaries 3,215 3,215
Commissions 536
Advertising 257 257
Administrative expenses 435 435
Rent 840 840
Depreciation 142 142
Miscellaneous expenses 122 122
Total expenses $5,547 $5,011
Net income $(406) $130
Elimination of sales commissions
affect the breakeven volume
 Fixed Costs
comes down => brings
BEP volume
 Revised BEP = 5011/ 0.745
= 6,726 sales tickets
Question 4
 Michaela felt thata bigger store could
benefit from greater advertising and
suggested that they increase
advertising by $200,000.
 How would this affect the break even
point?
 Would you recommend that the sisters
try this?
Affect of increase in Advertising
Expenses on the break even point
 Increase in Advertising Expenses by $200,000 i.e.
from the current level of $257,000 to $457,000
 It would lead to increase in fixed expenses from
current level of $5,547,000 to $5,747,000
 Which would lead to increase in BEP

 Revised BEP = 5747/ 0.745


= 7,714 sales tickets
Question 5
 How much would the average sales
ticket have to increase to breakeven
 if the fixed cost remained the same in
2007 as it was in 2006 ?
Solution
 BEP (in Sales) = $11,557,000
 Sales Ticket (current) = 6897
 Required Average Sales Ticket
= $11,557,000/ 6897
= $ 1,676
Question 6
 What do
you recommend that the
managers at Hallstead Jewelers do?

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