Question - Denny Manufacturing had a bad year 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 76,300 units of product: Net sales $1,510,740; total costs and expenses $1,737,000; and net loss $226,260. Costs and expenses consisted of the following.
|
Total
|
Variable
|
Fixed
|
|
Cost of goods sold
|
$1,199,800
|
$778,500
|
$421,300
|
|
Selling expenses
|
425,100
|
79,900
|
345,200
|
|
Administrative expenses
|
112,100
|
45,100
|
67,000
|
|
$1,737,000
|
$903,500
|
$833,500
|
Management is considering the following independent alternatives for 2013.
1. Increase unit selling price 26% with no change in costs and expenses.
2. Change the compensation of salespersons from fixed annual salaries totaling $196,800 to total salaries of $40,900 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 2012.
(b) Compute the break-even point in dollars under each of the alternative courses of action.