What is the solution to the following: Claire's Antiques has fixed cost of $75,000 per month. Each antique has the following identifiable sales price, variable material costs, and fixed monthly costs, respectively.
Sales Price Variable Material Costs Fixed Monthly Costs
Clocks $700 $320 20%
Dinette Sets $3,700 $1,280 35%
Bedroom Suites $6,500 $1,840 45%
When Claire's Antiques sells antiques through a distributor they pay a sales commission of 10% of the sales price. It sells 70% of each antique through its distributors. Assume that the fixed costs are allocated 20%, 35%, and 45% to the Clocks, Dinette Sets, and Bedroom Suites, respectively. Currently, the allocations are based on estimated design time for each antique.
Calculate the contribution margin for each antique. For purposes of this computation, ignore the sales commission as one of the variable cost.
Calculate the MONTHLY break-even units for each antique, once again, ignoring the variable cost for the sales commission.
This year, Claire's Antiques expects to sell 620 units of clocks, 180 units of dinette sets, and 110 units of bedroom suites, (70% through distributors as expected). Prepare a contribution margin income statement (with sales, each type of variable expense (material and sales commission), and fixed expenses) for Claire's Antiques based upon these sales volumes.
The distributors are now requesting a 15% commission on all antiques. Claire's Antiques does not want to change the selling prices of its antiques in order to absorb this increase. Compute by how much will it have to reduce other costs to make up for this request? What other counter-proposals could be suggested?
Claire's Antiques is facing fierce competition from a new company, and management decides to lower the selling price of the dinette sets by 10%. Also, they decide to acquire additional advertising at a cost of $1,000 per month. This cost will be allocated only to the dinette sets. Recalculate their Break Even (for the dinette sets only) point given the new information. Ignore sales commissions completely.
Claire's Antiques was ready to submit a sealed quote (bid) for a new customer who desired to purchase 150 clocks during the upcoming year. The sealed quote was for 150 clocks at $650 each, for a total selling price of $97,500. Claire's Antiques gained knowledge that its competitor was also placing a bid with this client. The competitors bid became known to have been for $600 per clock. If Claire's Antiques loses this bid, its clock sales will decline, resulting in lower profits, and possibly the lay off of workers will take place. What possibilities would you suggest for Claire's Antiques? And what should the company do and why?© BrainMass Inc. brainmass.com March 4, 2021, 7:08 pm ad1c9bdddf
Solution to your above posted problem is provided in a separate Excel file attached herewith.The step by step statements given in the solution are as follows.
1 Marginal cost statement.
2 Monthly Break even Point
Solution to your above posted problem is provided in a separate Excel file attached herewith.The step by step statements given in the solution are as follows: 1 Marginal cost statement. 2 Monthly Break even Point 3 Contribution Margin Income statement for the year ( with provision of 10% Sales commission), 4(a) Contribution Margin Income statement for the year(15%sales commission) with the same cost structure, (b) Contribution Margin Income statement for the year(15%sales commission) with the reduced variable material cost for maintaining same Net income as in Statement 3 above, 5 Marginal cost statement and Break even point for Dinette Sets, 6 Expected Profit on Clock sale to New customer, and 7 No of Extra units of alternative products to be sold to maintain desired profit.