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 77,000 units of product: Net sales $1,501,500; total costs and expenses $1,731,500; and net loss $230,000. Costs and expenses consisted of the following.
|
|
Total |
|
Variable |
|
Fixed |
| Cost of goods sold |
|
$1,206,100 |
|
$782,600 |
|
$423,500 |
| Selling expenses |
|
420,300 |
|
73,400 |
|
346,900 |
| Administrative expenses |
|
105,100 |
|
40,100 |
|
65,000 |
|
|
$1,731,500 |
|
$896,100 |
|
$835,400 |
Management is considering the following independent alternatives for 2014.
| 1. |
|
Increase unit selling price 22% with no change in costs and expenses. |
| 2. |
|
Change the compensation of salespersons from fixed annual salaries totaling $202,500 to total salaries of $35,000 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.
| Break-even point |
|
$ |
(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 |
|
$ |