Consider the following scenario - Research Paper Example

Question Sale price $12.00 variable cost $0.40 contribution margin $11.60 Question #2 Sales price 12 Variable cost 0.4 Contribution margin 11.6 Salaries99000Rent other fixed expenses21000Total fixed expenses120000Breakeven formula =(Fixed costs / CM ratio) (Richards, 2013)Breakeven point =10345unitsQuestion #3Revenues240000variable cost8000Gross margin232000Fixed costsSalaries99000Rent other fixed expenses21000Net income$112,000Question #4Sales12variable costs6.4Contribution margin5.6Fixed costsSalaries40000Rent other fixed expenses21000Total fixed costs61000Breakeven point =10893units#1 The contribution margin of the company was $11.60. This figure was calculated by subtracting variable costs from the sales price.

A high contribution margin is a positive indicator of profitability. The contribution margin is used to cover the fixed expenses of the company. #2 The breakeven point in units of the company is 10,345 units. The company must sell 10,345 units to cover all fixed and variable expenses of the organization. The net income at the breakeven point is cero dollars. If the firm sells fewer units than the breakeven point it will incur in net losses. #3 The net income of the company during the year was $112,000.

A firm’s net income reflects how much profit the company generated during a period of twelve months. The gross profit of the organization was $232,000. Gross profit is a broad measure of profitability. #4 The new breakeven point is 10,893 units. The changes in the compensation system increased the variable costs of the company. The end result was that the company had a higher breakeven point than with the old compensation system. A higher breakeven point is an undesirable outcome. ReferencesRichards, D. (2013). How to Do a Breakeven Analysis.

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