Question

Solomon Manufacturing Company reported the following data regarding a product it manufactures and sells. The sales price is $50. $ 11 per unit 7 per unit Variable costs Manufacturing Selling Fixed costs Manufacturing Selling and administrative $ 161,000 per year $274,200 per year Required a. Use the per-unit contribution margin approach to determine the break-even point in units and dollars. b. Use the per-unit contribution margin approach to determine the level of sales in units and dollars required to obtain a profit of $217,600 c. Suppose that variable selling costs could be eliminated by employing a salaried sales force. If the company could sell 20100 units, how much could it pay in salaries for salespeople and still have a profit of $217,600? (Hint Use the equation method.) $ a Break-even point in units Break-even point in dollars b. Required sales in units Required sales in dollars Fixed cost of salaries 13,600 680.000 20,400 1,020.000 $

Answer 1

C.

Contibution margin per unit of variable selling expense is eliminated:

= $50 - $11

= $39

Net income before salaries expense:

= (20,100 X $39) - $161,000 - $274,200

= $348,700

Desired profit = $217,600

Excess profit which can be used to pay salaries:

= $348,700 - $217,600

= $131,100

c.

Fixed cost of salaries = $131,100