CVP Analysis
Unique Manufacturing had a bad year in 2007. Having operated at a loss. The income statement showed the following results from selling 60,000: net sales $2,250,000, total costs and expenses $2,835,000; and loss $385,000. Costs and expenses consisted of the following
Total variable fixed
Cost of Goods sold 2,025,000 1,395,000 $630,000
Selling Expenses 630,000 110,000 520,000
Administrative expenses 180,000 70,000 110,000
Total 2,835,000 1,575,000 1,260,000
Management is considering the following independent alternatives for 2008
- Increase the unit selling price to $52.50 with no change in costs , expenses and sales volume
- Change in compensation of salespersons from fixed annual salaries totalling $300,000 to total salaries of $75,000 plus 5% commission on net sales
- Purchase new high tech factory that will change the proportion between variable and fixed cost of goods sold to 50:50
Required
a) Calculate the break -even point for the year 2007
b) Calculate the break -even point under each alternative course of action above.