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

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

Auto Tyres Has Been in the Tyre Business for Four