Problem:
Keppel Manufacturing had a bad year in 2012, operating at a loss for the first time in its history. The company's income statement showed the following results from selling 200,000 units of product: net sales $2,000,000; total costs and expenses $2,120,000; and net loss $120,000. Costs and expenses consisted of the following.
|
Total
|
Variable
|
Fixed
|
|
Cost of goods sold
|
$1,295,000
|
$975,000
|
$320,000
|
|
Selling expenses
|
575,000
|
325,000
|
250,000
|
|
Administrative expenses
|
250,000
|
100,000
|
150,000
|
|
$2,120,000
|
$1,400,000
|
$720,000
|
Management is considering the following independent alternatives for 2013.
1. Increase unit selling price 30% with no change in costs and expenses.
2. Change the compensation of salespersons from fixed annual salaries totaling $170,000 to total salaries of $50,000 plus a 6% 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 40:60.
Instructions
(a) Compute the break-even point in dollars for 2012.
(b) Compute the break-even point in dollars under each of the alternative courses of action. Which course of action do you recommend? (Round to the nearest dollar.)