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Fredonia Inc. had a bad year in 2013. For the first time in its history, it operated at a loss….
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 78,000 units of product: Net sales $1,536,600; total costs and expenses $1,740,200; and net loss $203,600. Costs and expenses consisted of the following.
| Total | Variable | Fixed | ||||
| Cost of goods sold | $1,202,800 | $780,600 | $422,200 | |||
| Selling expenses | 423,500 | 78,900 | 344,600 | |||
| Administrative expenses | 113,900 | 52,700 | 61,200 | |||
| $1,740,200 | $912,200 | $828,000 |
Management is considering the following independent alternatives for 2014.
| 1. | Increase unit selling price 29% with no change in costs and expenses. | |
| 2. | Change the compensation of salespersons from fixed annual salaries totaling $203,800 to total salaries of $43,200 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. (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 | $ 2038950 |
(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.)
| Break-even point | ||||
| 1. | Increase selling price | $2629935 |
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| 2. | Change compensation | $ |
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| 3. | Purchase machinery | $
|