Michael Eerhart

Exercise 3-19
1) X = FC / (P-V)
X = 300,000 / 15
X = 20,000
Break even point = 20,000 shirts
2)
$1,300
$1,200
$1,100
$1,000
$900
$800
$700
Dollars (000)

$600
$500
$400
$300
$200
$100
$0
0

10,000

20,000

Number of Shirts
)

Break even sales = 20,000 shirts

Actual sales = 19,000 shirts
Sales short = 1,000 shirts
1000 shirts x $15 CM per shirt = $15,000 lost
4) New variable expenses = $28 and new CM = $12
300,000 = $12 (per shirt) = 25,000 shirts
25,000 shirts x $40 per shirt = $1,000,000 in sales
5) Actual sales = 23,000 shirts
Break even sales = 20,000 shirts
Excess shirts = 3,500 shirts x $12 per shirt ($15 - $3) = $42,000 profit

30,000

6a) FC / (P-V) = $407,000 / ($40 - $18) = 18,500 shirts

6b) This change will lower the break-even point from 20,000 shirts down to 18,500
shirts. This is where its important to decide if the possible loss in sales will offset this.
The problem with fixed salaries without commission is that there is no incentive to sell
more shirts. This could result in a loss of shirts sold, which is not recommended.