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CVP ANALYSIS
You have just begun your summer internship at Omni Instruments. The company supplies
sterilized surgical instruments for physicians. To expand sales, Omni is considering paying a
commission to its sales force. The controller, Matthew Barnhill, asks you to compute: (1) the new
breakeven sales figure, and (2) the operating profit if sales increase 15% under the new sales
commission plan. He thinks you can handle this task because you learned CVP analysis in your
accounting class.
You spend the next day collecting information from the accounting records, performing the
analysis, and writing a memo to explain the results. The company president is pleased with your
memo. You report that the new sales commission plan will lead to a significant increase in
operating income and only a small increase in breakeven sales.
The following week, you realize that you made an error in the CVP analysis. You overlooked the
sales personnel’s $2,800 monthly salaries and you did not include this fixed marketing cost in
your computations. You are not sure what to do. If you tell Matthew Barnhill of your mistake, he
will have to tell the president. In this case, you are afraid Omni might not offer you permanent
employment after your internship.
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