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# Explanation - Explanation 1(a Before proceeding with the...

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Explanation: 1(a): Before proceeding with the solution, it is helpful first to restructure the data into contribution format for each of the three alternatives. (The data in the statements below are in thousands.) 11% Commission 16% Commission Own Sales Force Sales \$16,120 100% \$16,120 100% \$16,120.0 100.0% Variable expenses: Manufacturing 7,050 7,050 7,050 Commissions (11%, 16%, 5.5%) 1,773.20 2,579.20 886.60 Total variable expenses 8,823.20 54.7% 9,629.20

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59.7% 7,936.60 49.2% Contribution margin 7,296.80 45.3% 6,491 40.3% 8,183.40 50.8% Fixed expenses: Manufacturing overhead 2,160 2,160 2,160 Marketing 115 115 1,888* Administrative 1,800 1,800 1,727** Interest 520 520
Total fixed expenses 4,595 4,595 6,295 Income before income taxes 2,701.80 1,896 1,888.20 Income taxes (30%) 810.54 568.74 566.46 Net income \$1,891.26 \$1,327.06 \$1,321.74 *\$115,000 + \$1,773,200 = \$1,888,200 **\$1,800,000 – \$73,000 = \$1,727,000 When the income before taxes is zero, income taxes will also be zero and net income will be zero. Therefore, the break-even calculations can be based on the income before taxes. Break-even point in dollar sales if the commission remains 11%:

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Explanation - Explanation 1(a Before proceeding with the...

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