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Rather than purchase new equipment, the marketing manager argues that the company's marketing...

Question:

Rather than purchase new equipment, the marketing manager argues that the company's marketing strategy should be changed. Rather than pay sales commissions, which are currently included in variable expenses, the company would pay salespersons fixed salaries and would invest heavily in advertising. The marketing manager claims this new approach would increase unit sales by 50% without any change in selling price; the company's new monthly fixed expenses would be $331,200, and its net operating income would increase by 25%.

Compute the break-even point in dollar sales for the company under the new marketing strategy.

Morton Company's contribution format income statement for last month is given below:

Sales (46,000 units * $24 per unit) $1,104,000
Variable expenses $772,800
Contribution margin $331,200
Fixed expenses $264,960
Net operating income $66,240

Use Break-Even Analysis to Evaluate a New Marketing Strategy

One of the important features of break-even analysis is once a Company breaks down its costs and expenses into a variable and fixed, the Company can use break-even analysis to quickly evaluate the viability of changes in a variety of business factors. For example, using break-even analysis, changes in selling prices; changes in sales volumes; changes in the composition of expenses by and between fixed and variable expenses can be quickly analysis to recalculate the break-even point in dollar sales and unit volumes, too.

Answer and Explanation:

Compute the break-even point in dollar sales for the company under the new marketing strategy.

So, let's use the information in the contribution...

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Using Break-Even Analysis to Evaluate a Marketing Plan

from UExcel Principles of Marketing: Study Guide & Test Prep

Chapter 3 / Lesson 4
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