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Variable and Fixed Cost - contribution Margins

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1. Calculate the contribution margin for each antique. For purposes of this computation, ignore the sales commission as one of the variable cost.
2. Calculate the MONTHLY break-even units for each antique, once again, ignoring the variable cost for the sales commission.
3. 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.
4. 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?
5. 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.

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Solution Summary

Variable and fixed cost are discussed. The expert computes the contribution margin for each antique.

Solution provided by:
Manal Elkhoshkhany, MBA
Education
  • BA, Ain Shams University, Cairo Egypt
  • MBA, California State University, Sacramento
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