Denny Manufacturing had a bad year in 2012. For the first time in its history, it operated at a loss. The company's income statement showed the following results from selling 75,600 units of product: Net sales $1,474,200; total costs and expenses $1,733,900; and net loss $259,700. Costs and expenses consisted of the following.
|
|
Total
|
|
Variable
|
|
Fixed
|
| Cost of goods sold |
|
$1,198,800 |
|
$775,800 |
|
$423,000 |
| Selling expenses |
|
422,600 |
|
72,800 |
|
349,800 |
| Administrative expenses |
|
112,500 |
|
42,800 |
|
69,700 |
|
|
$1,733,900 |
|
$891,400 |
|
$842,500 |
Management is considering the following independent alternatives for 2013.
| 1. |
|
Increase unit selling price 22% with no change in costs and expenses. |
| 2. |
|
Change the compensation of salespersons from fixed annual salaries totaling $204,900 to total salaries of $38,000 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 2012. (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 |
|
$ |
Which course of action do you recommend? Alternative 1 Alternative 2 Alternative 3