Answered

Find answers to your questions faster and easier with IDNLearn.com. Get accurate answers to your questions from our community of experts who are always ready to provide timely and relevant solutions.

Marketing Addis prepares marketing plans for growing businesses. For 2017, budgeted revenues are $1,500,000 based on 500 marketing plans at an average rate per plan of $3,000. The company would like to achieve a margin of safety percentage of at least 45%. The company’s current fixed costs are $400,000 and variable costs average $2,000 per marketing plan. Which of the following changes would help Marketing Docs achieve its desired margin of safety? a) The average revenue per customer increases to $4,000. b) The planned number of marketing plans prepared increases by 5%. c) Marketing Addis purchases new software that results in a 5% increase to fixed costs but reduces variable costs by 10% per marketing plan.

Sagot :

Answer:

1. Break even points = 400 units

margin of safety = $100

Explanation:

Given data:

budget revenue in 2017 = $1,500,000

Fixed cost =$400,000

total marketing plan = 500

take contribution margin/unit =  Revenue - variable cost

                                                = 3000 - 2000

contribution margin/unit = $1000

take break even sales $400

break even point    

Break even point  

margin of safety is calculated as

margin of safety  = total quantity to be sold - break even sales

                            = 500 - 400 = $100

2. A.

(1)  

 

Break even in marketing plan = 400

(2) Break-even in dollars:

= Break-even in marketing plan × Average rate per plan

= 400 × 3,000

= 1,200,000

(3) Margin of safety = Actual sales - Break-even sales in dollars

                               = 1,500,000 - 1,200,000

                               = 300,000

 

 

                                            = 20%

B.

(1) Contribution margin per marketing plan = Sales - Variable cost

                                                                  =  $4,000 - $2,000

                                                                  = $2,000

 

 

Break even in marketing plan = 200

(2) Break-even in dollars:

= Break-even in marketing plan × Average rate per plan

= 200 × 4,000

= 800,000

(3) Margin of safety = Actual sales - Break-even sales in dollars

                               = 1,500,000 - 800,000

                               = 700,000

 

 

                                            = 47%

Therefore, option (a) would achieve the margin of safety ratio more than 45%.

Step-by-step explanation:

Your presence in our community is highly appreciated. Keep sharing your insights and solutions. Together, we can build a rich and valuable knowledge resource for everyone. IDNLearn.com is dedicated to providing accurate answers. Thank you for visiting, and see you next time for more solutions.