Giere Manufacturing had a bad year in 2011. 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 $1,600,000; total costs and expenses $1,740,000; and net loss $140,000. Costs and expenses consisted of the following.
- Total Variable Fixed
- Cost of goods sold $1,200,000 $780,000 $420,000
- Selling expenses 420,000 75,000 345,000
- Administrative expenses 120,000 45,000 75,000
- $1,740,000 $900,000 $840,000
Management is considering the following independent alternatives for 2012.
Increase unit selling price 25% with no change in costs and expenses.
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.
Purchase new high-tech factory machinery that will change the proportion between variable and fixed cost of goods sold to 50:50.
Compute the break-even point in dollars for 2011. (Round answers to 0 decimal places, e.g. 125. For computational of unit costs and contribution margin ratios, round to 4 decimal places, e.g. 10.2520. Round all other computations to 0 decimal places, e.g. 125.)
Compute the break-even point in dollars under each of the alternative courses of action. (Round answers to 0 decimal places, e.g. 125. For computational of unit costs and contribution margin ratios, round to 4 decimal places, e.g. 10.2520. Round all other computations to 0 decimal places, e.g. 125.)
1. Increase selling price $______
2. Change compensation $______
3. Purchase machinery $______