Dousmann Corp.'s sales slumped badly in 2014. For the first time in its history, it operated at a loss. The company's income statement showed the following results from selling618,000units of product: sales $2,472,000; total costs and expenses $2,616,200; and net loss $144,200. Costs and expenses consisted of the amounts shown below.
|
|
Total |
|
Variable |
|
Fixed |
| Cost of goods sold |
|
$2,163,000 |
|
$1,483,200 |
|
$679,800 |
| Selling expenses |
|
247,200 |
|
74,160 |
|
173,040 |
| Administrative expenses |
|
206,000 |
|
49,440 |
|
156,560 |
|
|
$2,616,200 |
|
$1,606,800 |
|
$1,009,400 |
Management is considering the following independent alternatives for 2015.
1. Increase unit selling price24% with no change in costs, expenses, and sales volume.
2. Change the compensation of salespersons from fixed annual salaries totaling $154,500to total salaries of $61,800plus a6% commission on sales.
(a) Compute the break-even point in dollars for 2014.(Round final answer to 0 decimal places, e.g. 1,225.)
(b)Compute the contribution margin under each of the alternative courses of action.(Round final answer to 0 decimal places, e.g. 1,225.)
Contribution margin for alternative 1 %
Contribution margin for alternative 2 %
Compute the break-even point in dollars under each of the alternative courses of action.(Round selling price per unit to 2 decimal places, e.g. 5.25 and other calculations to 0 decimal places, e.g. 20% and also final answer to 0 decimal places, e.g. 1,225.)
Break-even point for alternative 1 $
Break-even point for alternative 2 $
Which course of action do you recommend?