Gorham Manufacturing's sales slumped badly 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 600,000 units of product: Net sales $2,400,000; total costs and expenses $2,540,000; and net loss $140,000. Costs and expenses consisted of the amounts shown below.
|
|
Total |
Variable |
Fixed |
|
Cost of goods sold |
$2,100,000 |
|
$1,440,000 |
|
$660,000 |
|
|
Selling expenses |
240,000 |
|
72,000 |
|
168,000 |
|
|
Administrative expenses |
200,000
|
|
48,000
|
|
152,000
|
|
|
|
$2,540,000
|
|
$1,560,000
|
|
$980,000
|
|
Management is considering the following independent alternatives for 2013.
- Increase unit selling price 20% with no change in costs, expenses, and sales volume.
- Change the compensation of salespersons from fixed annual salaries totaling $150,000 to total salaries of $60,000 plus a 3% commission on net sales.
- Purchase new automated equipment that will change the proportion between variable and fixed cost of goods sold to 54% variable and 46% fixed.
Q: 1.Compute the break-even point in dollars for 2012. <-- I got this $2,800,000
2.Compute the break-even point in dollars under each of the alternative courses of action.(Round ratios and final answers to 0 decimal places, e.g. 125.)
3.Which course of action do you recommend?