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    sagnik2422's Avatar
    sagnik2422 Posts: 77, Reputation: 1
    Junior Member
     
    #1

    Dec 25, 2014, 04:18 PM
    Cost Accounting Break Even Question Need Help
    Santa Fe Electronics sells televisions. The average selling price of a TV is $970. The TV's are purchased from manufacturers at an average cost of $680 per unit, which includes shipping. Since customers pick up TVs directly from the shop, the company pays no delivery charge. Sales people are paid a fixed salary plus a commission of $40 per unit. All selling and administrative expenses, including the salaries, ar fixed at a total of $58,000 per month. In order to increase their sales, the company has decided to increase the unit commission to $60 for every TV sold above break even point.


    How many units of TV's does company need to sell in order to earn a net operating income of $11,500 per month (round all decimal to one unit)
    A) 309
    B) 293
    C) 243
    D) 282
    E) None
    Please show help with steps.
    I know a formula which is target profit + fixed expenses / cm ratio but it does not really help in getting units.
    paraclete's Avatar
    paraclete Posts: 2,706, Reputation: 173
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    #2

    Dec 27, 2014, 07:19 PM
    commission is a variable cost per unit therefore the contribution margin = $250 and $230 a unit, Fixed costs plus desired profit is $69,500 you do the math. What you have here is a step in the calculation. Therefore you solve it in two parts. If you divide by a unit value the answer you get must be related to the number of units

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