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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
P5-3A 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 selling 500,000 units of product: sales $2,500,000; total costs and expenses $2,600,000; and net loss $100,000. Costs and expenses consisted of the amounts shown below.
Total             Variable            Fixed
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|
Cost of goods sold |
$2,140,000 |
 |
$1,540,000 |
 |
$600,000 |
|
Selling expenses |
250,000 |
 |
92,000 |
 |
158,000 |
|
Administrative  expenses |
210,000 |
 |
68,000 |
 |
142,000 |
|
 |
$2,600,000 |
 |
$1,700,000 |
 |
$900,000 |
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Management is considering the following independent alternatives for 2015.
1.Â
Increase unit selling price 20% with no change in costs, expenses, and sales volume.
2. Change the compensation of salespersons from fixed annual salaries totaling $150,000 to total salaries of $60,000 plus a 5% commission on sales.
Instructions
(a)Â Compute the break-even point in dollars for 2014.
(b)Â Compute the break-even point in dollars under each of the alternative courses of action. (Round all ratios to nearest full percent.) Which course of action do you recommend?
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