Fredonia Inc. had a bad year in 2013. For the first time in its history, it operated at a loss. The company's income statement showed the following results from selling 80,000 units of product: Net sales $2,000,000; total costs and expenses $2,135,000; and net loss $135,000. Costs and expenses consisted of the following.
|
|
Total
|
|
Variable
|
|
Fixed
|
| Cost of goods sold |
|
$1,468,000 |
|
$950,000 |
|
$518,000 |
| Selling expenses |
|
517,000 |
|
92,000 |
|
425,000 |
| Administrative expenses |
|
150,000 |
|
58,000 |
|
92,000 |
|
|
$2,135,000 |
|
$1,100,000 |
|
$1,035,000
|
Management is considering the following independent alternatives for 2014.
| 1. |
|
Increase unit selling price 25% with no change in costs and expenses. |
| 2. |
|
Change the compensation of salespersons from fixed annual salaries totaling $200,000 to total salaries of $40,000 plus a 5% commission on net sales. |
| 3. |
|
Purchase new high-tech factory machinery that will change the proportion between variable and fixed cost of goods sold to 50:50.
a) Compute the break-even point in dollars for 2014. (Round contribution margin ratio to 4 decimal places e.g. 0.2512 and final answers to 0 decimal places, e.g. 2,510.)
| Break-even point |
|
$ |
|
(b) Compute the break-even point in dollars under each of the alternative courses of action. (Round contribution margin ratio to 4 decimal places e.g. 0.2512 and final answers to 0 decimal places, e.g. 2,510.)
|
|
|
|
Break-even point
|
| 1. |
|
Increase selling price |
|
$
|
| 2. |
|
Change compensation |
|
$
|
| 3. |
|
Purchase machinery |
|
$ |