1.
Explain the term sales mix.
1.
Explanation of Solution
The term sales mix refers to the relative percentage of the total sales based on the provided number of products. In other words, it is expressed as a percentage of units sold for each product with respect to the total units sold for all the products.
2 a.
Explain Plan A comparing to current compensation to achieve management’s objective of an increased presence in the marketplace.
2 a.
Explanation of Solution
Yes, plan A will achieve management’s objective of an increased presence in the marketplace because the current sales is 60,000 units whereas, plan A sales are expected to total 65,000 units (1).
Working note:
(1) Calculate the expected sales.
2 b.
Explain if the salespeople be promoting the product that one would logically expect by comparing the Plan A to the current compensation.
2 b.
Explanation of Solution
Yes, Salespeople promote the product that one would logically expect because they earn a commission based on gross dollar sales. The below table shows, deluxe sales contains a greater proportion of total sales under plan A. Therefore, the deluxe ($86) has a higher selling price than basic ($74).
Calculate the total sales (units).
Particulars | Current | Plan A | ||
Units |
Sales Mix | Units |
Sales Mix | |
Deluxe | 39,000 | 65% | 45,500 | 70% |
Basic | 21,000 | 35% | 19,500 | 30% |
Total | 60,000 | 100% | 65,000 | 100% |
Table (1)
2 c.
Explain whether the sales force is likely to be satisfied with the results of Plan A and give reason.
2 c.
Explanation of Solution
Yes, the sales force are satisfied with the result of plan A because commission totals $535,600 ($5,356,000 x 10%) when compared to the current salaries of $400,000.
Calculate the total sales
Particulars | Amount ($) |
Deluxe sales (1) | 3,913,000 |
Basic sales (2) | 1,443,000 |
Total | 5,356,000 |
Table (2)
Working Notes:
(1) Calculate the deluxe sales.
(2) Calculate the basic sales.
2 d.
Explain if Mr. L is likely to be satisfied with the resulting impact of Plan A on company profitability. Give reason.
2 d.
Explanation of Solution
From the below given table Mr. L will not be satisfied with the impact of Plan A because the company would be less profitable under the Plan A.
Calculate the net income.
Particulars | Current | Plan A |
Sales revenue: | ||
Deluxe | $3,354,000 (1) | $3,913,000 (2) |
Basic | 1,554,000(3) | 1,443,000 (4) |
Total Revenue | $4,908,000 | $5,356,000 |
Less: Variable Cost: | ||
Deluxe | 2,535,000(5) | 2,957,500(6) |
Basic | 861,000(7) | 799,500(8) |
Sales commissions | 535,600(9) | |
Total Variable cost | $3,396,000 | $4,292,600 |
Contribution Margin | $1,512,000 | $1,063,400 |
Less: Fixed cost (salaries) | 400,000 | |
Net Income | $1,112,000 | $1,063,400 |
Table (3)
Working Notes:
(1) Calculate the deluxe sales (current).
(2) Calculate the deluxe sales (Plan A).
(3) Calculate the basic sales (current).
(4) Calculate the basic sales (Plan A).
(5) Calculate the deluxe sales (current).
(6) Calculate the deluxe sales (Plan A).
(7) Calculate the basic sales (current).
(8) Calculate the basic sales (Plan A).
(9) Calculate the sales commission.
3 a.
Comment on the results by comparing Plan A and Plan B with respect to total units sold and sales mix.
3 a.
Explanation of Solution
From the above table, the total units sold under both plans are same. As judged by the contribution margin the sales mix has shifted under plan B in favor of the more profitable product. Deluxe has a contribution margin of $21 and basic has a contribution margin of $33.
Calculate the total sales (units).
Particulars | Plan A | Plan B | ||
Units |
Sales Mix | Units |
Sales Mix | |
Deluxe | 45,500 | 70% | 26,000 | 40% |
Basic | 19,500 | 30% | 39,000 | 60% |
Total | 65,000 | 100% | 65,000 | 100% |
Table (4)
3 b.
Show calculations in comparison with flat salaries, if Plan B is more attractive to the sales force and to the company.
3 b.
Explanation of Solution
Calculate the net income.
Particulars | Current | Plan B |
Sales revenue: | ||
Deluxe | $3,354,000 (1) | $2,236,000(10) |
Basic | 1,554,000(3) | 2,886,000(11) |
Total Revenue | $4,908,000 | $5,122,000 |
Less: Variable Cost: | ||
Deluxe | 2,535,000(5) | $1,690,000(12) |
Basic | 861,000(7) | 1,599,000 (13) |
Total Variable cost | $3,396,000 | $3,289,600 |
Contribution Margin | $1,512,000 | $1,833,000 |
Flat salaries | 400,000 | |
Commission | 549,900(14) | |
Net Income | $1,112,000 | $1,283,100 |
Table (5)
Working Notes:
(10) Calculate the deluxe sales (Plan B).
(11) Calculate the basic sales (Plan B).
(12) Calculate the deluxe sales (Plan B).
(13) Calculate the basic sales (Plan B).
(14) Calculate the commission.
Plan B is more attractive to the sales force and to the company. Salespeople earn more under this plan; where Plan B’s salary is $549,900 and Current salary is $400,000. And company is more profitable; where Plan B’s net income is $1,283,100 and current net income is $1,112,000.
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Chapter 7 Solutions
Loose-Leaf for Managerial Accounting: Creating Value in a Dynamic Business Environment
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