Question

Multiple-Level Break-Even Analysis
Nielsen Associates provides marketing services for a number of small manufacturing firms. Nielsen receives a commission of 10 percent of sales. Operating costs are as follows:

Unit-level costs	$0.02 per sales dollar
Sales-level costs	$100 per sales order
Customer-level costs	$800 per customer per year
Facility-level costs	$60,000 per year

(a) Determine the minimum order size in sales dollars for Nielsen to break even on an order.
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(b) Assuming an average customer places four orders per year, determine the minimum annual sales required to break even on a customer.
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(c) What is the average order size in (b)?
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(d) Assuming Nielsen currently serves 100 customers, with each placing an average of four orders per year, determine the minimum annual sales required to break even.
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(e) What is the average order size in (d)?
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(f) Explain the differences in the answers to (a), (c), and (e).

In multiple customer firms the break-even point decreases as the number of customers increases.

The most important costs to cover are unit level costs.

In the long-run the most important costs are facility level costs.

Even if individual orders have a positive contribution, some customers may be unprofitable.

Answer 1