Prem Narayan, a graduate student in engineering, to market aradical new speaker he had designed for automobile sound systems,founded Acoustic Concepts, Inc. Prem established the companyâsheadquarters into rented quarters in a nearby industrial park. Hehired a receptionist, an accountant, a sales manager, and a smallsales staff to sell the speakers to retail stores. Prem asked hisaccountant, Bob Luchinni, to prepare several cost-volume-profitanalyses, using the information shown below.
Sales price for one speakerset................................................... $250Variable manufacturing cost for each speaker set (direct
materials)...................................................................................$150 Fixed expenses per month (rent, salaries of receptionist,sales
people, accountant, andPrem)................................................... $35,000Number of speaker sets sold permonth..................................... 400
Prem and other management personnel are considering the use ofhigher-quality components, which would increase variable costs by$10 per speaker. However, the sales manager predicts that thehigher overall quality would increase sales to 480 speaker sets permonth. Should the higher quality components be used?
The sales manager believes that by reducing the selling price ofspeakers by $20, and also by increasing the advertising budget by$15,000 per month, that sales will increase to 600 speaker sets permonth. Should the changes be made?
The sales manager would like to place the sales staff on acommission basis of $15 per speaker sold, rather than on flatsalaries that now total $6,000 per month. The sales manager isconfident that the change will increase monthly sales to 460speaker sets per month. Should the change be made?
Suppose Acoustic Concepts has an opportunity to make a bulk saleof 150 speakers to a wholesaler, if an acceptable price can beworked out. The sale would not disturb the companyâs regular sales,nor would if affect fixed operating costs per month. What priceshould be quoted to the wholesaler if Acoustic Concepts wants toincrease its monthly profits by $3,000?
ï· C.M.=contribution margin, S.P.=sales price, V.C.=variablecost, F.C.=fixed cost
ï· C.M. per unit = S.P. per unit â V.C. per unit
ï· The break even point is the point at which the totalcontribution margin equals fixed costs.
ï· Break even units sold = F.C. / C.M. Per unit
ï· Break even sales dollars = F.C. / C.M. Percentage
ï· C.M. Percentage = C.M. per unit / S.P. per unit, or C.M.(total) / Sales (total)
