Dousmann Corp.'s sales slumped badly in 2014. For the first time in its history, it operated at a loss. The company's income statement showed the following results from selling 654,000 units of product: sales $2,616,000; total costs and expenses $2,768,600; and net loss $152,600. Costs and expenses consisted of the amounts shown below.
|
|
Total
|
|
Variable
|
|
Fixed
|
| Cost of goods sold |
|
$2,289,000 |
|
$1,569,600 |
|
$719,400 |
| Selling expenses |
|
261,600 |
|
78,480 |
|
183,120 |
| Administrative expenses |
|
218,000 |
|
52,320 |
|
165,680 |
|
|
$2,768,600 |
|
$1,700,400 |
|
$1,068,200 |
Management is considering the following independent alternatives for 2015.
| 1. |
|
Increase unit selling price 21% with no change in costs, expenses, and sales volume. |
| 2. |
|
Change the compensation of salespersons from fixed annual salaries totaling $163,500 to total salaries of $65,400 plus a 6% commission on sales. |
(a) Compute the break-even point in dollars for 2014. (Round final answer to 0 decimal places, e.g. 1,225.)
| Break-even point |
|
$
|
(b) Compute the contribution margin under each of the alternative courses of action. (Round final answer to 0 decimal places, e.g. 1,225.)
| Contribution margin for alternative 1 |
|
%
|
| Contribution margin for alternative 2 |
|
%
|
Compute the break-even point in dollars under each of the alternative courses of action. (Round selling price per unit to 2 decimal places, e.g. 5.25 and other calculations to 0 decimal places, e.g. 20% and also final answer to 0 decimal places, e.g. 1,225.)
| Break-even point for alternative 1 |
|
$
|
| Break-even point for alternative 2 |
|
$
|
Which course of action do you recommend?