Your company is considering paying a commission to the sales force to expand
sales. You are charged by the Chief Financial Officer with 1) computing a new
breakeven point, and 2) the operating profit increase by 20% with the new sales
You spend the next
week gathering information, analyzing the information, and performing various
cost-volume-profit analysis. You generate a report showing the new plan should
lead to a substantial increase in sales with a minimum increase in breakeven
sales. You create a memo explaining this report and the president of the
company is pleased with your information and plans to implement it.
A few days later you
review your numbers and realize your analysis has missed using the sales
personnel’s monthly salary and the fixed selling costs. You re-calculate your
numbers and realize the results are drastically different.