Auto Tires Has Been in the Tire Business for Four

question 133

Essay

Auto Tires has been in the tire business for four years.It rents a building but owns all of its equipment.All employees are paid a fixed salary except for the busy season (April-June),when temporary help is hired by the hour.Utilities and other operating charges remain fairly constant during each month except those in the busy season.
Selling prices per tire average $75 except during the busy season.Because a large number of customers buy tires prior to winter,discounts run above average during the busy season.A 15% discount is given when two tires are purchased at one time.During the busy months,selling prices per tire average $60.
The president of Auto Tires is somewhat displeased with the company's management accounting system because the cost behavior patterns displayed by the monthly breakeven charts are inconsistent; the busy months' charts are different from the other months of the year.The president is never sure if the company has a satisfactory margin of safety or if it is just above the breakeven point.
Required:
a.What is wrong with the accountant's computations?
b.How can the information be presented in a better format for the president?

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Definitions:

Sales-Based Commissions

Sales-based commissions are payments made to employees based on the volume or value of sales they generate, typically a percentage of sales revenue.

Task Behaviour

The actions and activities an individual undertakes as part of their job responsibilities or duties.

Reward System

A structured set of incentives and criteria designed to motivate employees and improve their performance.

Employee Behavioural Perspective

The study of employees' actions and attitudes in the workplace and how they impact both individual and organizational performance.