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Cost Volume Profit Analysis of Monteray Co.

Please provide some assistance in solving Monteray Co. break-even and margin of sales problems: (attached as well)
Monteray Co. makes and sells a single product. The current selling price is $4 per unit. Variable expenses are $8.4 per unit, and fixed expenses total $33,700 a month.
a. Calculate the break-even point expressed in terms of total sales dollars and sales volume.
b. Calculate the margin of safety and the margin of safety ratio. Assume current sales are $98,252.
(Do not round your intermediate calculations. Round your percentage answer to 2 decimal places.)
c. Calculate the monthly operating income (or loss) at a sales volume of 5,250 units per month.
(Do not round your intermediate calculations)
d. Calculate monthly operating income (or loss) if a $2 per unit reduction in selling price results in a volume increase to 8,400 units
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?
1. Does the increase in volume move fixed expenses into a new relevant range?
2. Does the increase in volume move variable expenses into a new relevant range?
3. Are variable expenses really linear?
4. Are fixed expenses really linear?
f. Calculate the monthly operating income (or loss) that would result from a $1 per unit price increase and a $6,000 per month increase in advertising expenses both relative to the original data. Assume a sales volume of 5,250 units per month. (Do not round your intermediate calculations).
g. Management is considering a change in the sales force compensation plan. Currently each of the firm's two sales people is paid a salary of $2,500 per month.
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 0.95 per unit assuming a sales volume of 5,200 units per month. (Do not round your intermediate calculations. Round your final answer to the nearest whole dollar).
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 $0.95 per unit assuming a sales volume of 6,150 units per month,of $0.95 per unit assuming a sales volume of 6,150 units per month. (Do not round your intermediate calculations. Round your final answer to nearest whole dollar).
h1. Assuming that the sales volume of 6,150 units per month achieved in part g could be also be achieved by increasing advertising by $1,000 per month instead of changing the sales force compensation plan. What would be the operating incom or loss? (Do not round your intermediate calculation).
h2. Which strategy would you recommend?
a. Plan to increase advertising expenses.
b. Plan to change the sales force compensation.

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Solution Summary

This solution helps in analysing alternate strategies like plan to increase advertising expenses and plan to change the sales force compensation.

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