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 79,700 units of product: Net sales $1,578,060; total costs and expenses $1,744,100; and net loss $166,040. Costs and expenses consisted of the following.
|
|
Total
|
|
Variable
|
|
Fixed
|
| Cost of goods sold |
|
$1,201,300 |
|
$780,100 |
|
$421,200 |
| Selling expenses |
|
423,300 |
|
74,000 |
|
349,300 |
| Administrative expenses |
|
119,500 |
|
45,500 |
|
74,000 |
|
|
$1,744,100 |
|
$899,600 |
|
$844,500 |
Management is considering the following independent alternatives for 2013.
| 1. |
|
Increase unit selling price 24% with no change in costs and expenses. |
| 2. |
|
Change the compensation of salespersons from fixed annual salaries totaling $197,000 to total salaries of $37,600 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.
(b) Compute the break-even point in dollars under each of the alternative courses of action.
|
|
|
|
Break-even point
|
| 1. |
|
Increase selling price |
|
$
|
| 2. |
|
Change compensation |
|
$
|
| 3. |
|
Purchase machinery $ |
|
|