Monterey Co

Question

Monterey Co. makes and sells a single product. The current selling price is $16 per unit. Variable expenses are $9.6 per unit, and fixed expenses total $36,880 per month. (Unless otherwise stated, consider each requirement separately.)

Exercise 1:

Required:
a.	Calculate the break-even point expressed in terms of total sales dollars and sales volume. (Do not round your intermediate calculations. Round your final answers to nearest whole number.)

Exercise 2:

Monterey Co. makes and sells a single product. The current selling price is $16 per unit. Variable expenses are $9.6 per unit, and fixed expenses total $36,880 per month. (Unless otherwise stated, consider each requirement separately.)

b.	Calculate the margin of safety and the margin of safety ratio. Assume current sales are $108,208 (Do not round your intermediate calculations. Round your percentage answer to 2 decimal places.)

Exercise 3:

Monterey Co. makes and sells a single product. The current selling price is $16 per unit. Variable expenses are $9.6 per unit, and fixed expenses total $36,880 per month. (Unless otherwise stated, consider each requirement separately.)

c.	Calculate the monthly operating income (or loss) at a sales volume of 5,450 units per month. (Do not round your intermediate calculations.)

Exercise 4:

Monterey Co. makes and sells a single product. The current selling price is $16 per unit. Variable expenses are $9.6 per unit, and fixed expenses total $36,880 per month. (Unless otherwise stated, consider each requirement separately.)

d.	Calculate monthly operating income (or loss) if a $2 per unit reduction in selling price results in a volume increase to 8,100 units per month. (Do not round your intermediate calculations.)

Exercise 5:

Monterey Co. makes and sells a single product. The current selling price is $16 per unit. Variable expenses are $9.6 per unit, and fixed expenses total $36,880 per month. (Unless otherwise stated, consider each requirement separately.)

e.	What questions would have to be answered about the cost-volume-profit analysis simplifying assumptions before adopting the price cut strategy of part d? (Select all that apply.)

Does the increase in volume move fixed expenses into a new relevant range?

Are variable expenses really linear?

Exercise 6:

Monterey Co. makes and sells a single product. The current selling price is $16 per unit. Variable expenses are $9.6 per unit, and fixed expenses total $36,880 per month. (Unless otherwise stated, consider each requirement separately.)

Exercise 7:

Monterey Co. makes and sells a single product. The current selling price is $16 per unit. Variable expenses are $9.6 per unit, and fixed expenses total $36,880 per month. (Unless otherwise stated, consider each requirement separately.)

Management is considering a change in the sales force compensation plan. Currently each of the firm's two salespeople is paid a salary of $2,500 per month.

g.1

Calculate the monthly operating income (or loss) that would result from changing the compensation plan to a salary of $400 per month, plus a commission of $0.8 per unit, assuming a sales volume of 5,450 units per month. (Do not round your intermediate calculations. Round your final answer to nearest whole dollar.)

g.2

Calculate the monthly operating income (or loss) that would result from changing the compensation plan to a salary of $400 per month, plus a commission of $0.8 per unit, assuming a sales volume of 6,350 units per month. (Do not round your intermediate calculations. Round your final answer to nearest whole dollar.)

h.1

Assuming that the sales volume of 6,350 units per month achieved in part g could also be achieved by increasing advertising by $1,000 per month instead of changing the sales force compensation plan. What would be the operating income or loss? (Do not round your intermediate calculations.)

h.2

Which strategy would you recommend?