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 78,100 units of product: Net sales $1,507,330; total costs and expenses $1,758,000; and net loss $250,670. Costs and expenses consisted of the following
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Total
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Variable
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Fixed
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| Cost of goods sold |
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$1,208,700 |
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$784,000 |
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$424,700 |
| Selling expenses |
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425,100 |
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75,300 |
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349,800 |
| Administrative expenses |
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124,200 |
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53,300 |
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70,900 |
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$1,758,000 |
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$912,600 |
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$845,400 |
Management is considering the following independent alternatives for 2014.
| 1. |
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Increase unit selling price 21% with no change in costs and expenses. |
| 2. |
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Change the compensation of salespersons from fixed annual salaries totaling $199,100 to total salaries of $36,800 plus a 5% commission on net sales. |
| 3. |
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Purchase new high-tech factory machinery that will change the proportion between variable and fixed cost of goods sold to 50:50. |
(a) Compute the break-even point in dollars for 2014. (Round contribution margin ratio to 4 decimal places e.g. 0.2512 and final answers to 0 decimal places, e.g. 2,510.)
| Break-even point |
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$________________________
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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.)
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Break-even point
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| 1. |
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Increase selling price |
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$
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| 2. |
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Change compensation |
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$
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| 3. |
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Purchase machinery |
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$
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