EXERCISE 6-17 (30 MINUTES)

1. 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.

a. Break-even point in dollar sales if the commission remains 15%.

Fixed costs $4,800,000 = =$12,000,000

CM ratio 0.40

b. Break-even point in dollar sales if the commission increases to 20%.

Fixed costs $4,800,000 = =$13,714,286

CM ratio 0.35

c. Break-even point in dollar sales if the company employs its own sales

force.

Fixed costs $7,125,000 = =$15,000,000

CM ratio 0.475