Cruz Manufacturing had a bad year in 2008. For the first time inits history it operated at a loss. The company's incomestatement showed the following results from selling 80,000 units ofproduct: Net sales $1,600,000; total costs and expenses $1,740,000;and net loss $140,000. Costs and expenses consisted of thefollowing.
|
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 alternativesfor 2009.
- Increase unit selling price 25% with no change in costs andexpenses.
- Change the compensation of salespersons from fixed annualsalaries 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 theproportion between variable and fixed cost of goods sold to50:50.
Compute the break-even point in dollars for 2008. $ 1,920,000 Compute the break-even point in dollars under each of thealternative courses of action. Which alternative isthe recommended course of action?