Fredonia Inc. had a bad year in 2013. For the first time in its history, it operated at a loss. The company's income statement showed the following results from selling 78,400 units of product: Net sales $1,536,640; total costs and expenses $1,741,100; and net loss $204,460. Costs and expenses consisted of the following.
|
|
Total |
|
Variable |
|
Fixed |
| Cost of goods sold |
|
$1,207,800 |
|
$783,900 |
|
$423,900 |
| Selling expenses |
|
426,300 |
|
79,600 |
|
346,700 |
| Administrative expenses |
|
107,000 |
|
44,100 |
|
62,900 |
|
|
$1,741,100 |
|
$907,600 |
|
$833,500 |
Management is considering the following independent alternatives for 2014.
| 1. |
|
Increase unit selling price 21% with no change in costs and expenses. |
| 2. |
|
Change the compensation of salespersons from fixed annual salaries totaling $203,000 to total salaries of $41,500 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 2014. (Round contribution margin ratio to 4 decimal places e.g. 0.2512 and final answers to 0 decimal places, e.g. 2,510.)
(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.)