P6-1A

P6-1A 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 80,000 units of product: net sales $2,000,000; total costs and expenses $1,740,000; and net loss

$135,000. Costs and expenses consisted of the following.

 

 

Â	Total	Â	Variable	Â	Fixed
Cost of goods sold	$1,468,000	Â	$   950,000	Â	$   518,000
Selling expenses	517,000	Â	92,000	Â	425,000
Administrative  expenses	150,000	Â	58,000	Â	92,000
Â	$2,135,000	Â	$1,100,000	Â	$1,035,000

 

                                                      

Management is considering the following independent alternatives for 2014.

1.  Increase unit selling price 25% with no change in costs and expenses.

2.  Change the compensation of salespersons from fixed annual salaries totaling $200,000 to total salaries of $40,000 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.

 

 

 

 

 

 

 

 

 

Instructions

(a)  Compute the break-even point in dollars for 2014.

(b)  Compute the break-even point in dollars under each of the alternative courses of action. (Round to the nearest dollar.) Which course of action do you recommend?cccc

. 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 80,000 units of product: net sales $2,000,000; total costs and expenses $1,740,000; and net loss

$135,000. Costs and expenses consisted of the following.

 

 

Â	Total	Â	Variable	Â	Fixed
Cost of goods sold	$1,468,000	Â	$   950,000	Â	$   518,000
Selling expenses	517,000	Â	92,000	Â	425,000
Administrative  expenses	150,000	Â	58,000	Â	92,000
Â	$2,135,000	Â	$1,100,000	Â	$1,035,000

 

                                                      

Management is considering the following independent alternatives for 2014.

1.  Increase unit selling price 25% with no change in costs and expenses.

2.  Change the compensation of salespersons from fixed annual salaries totaling $200,000 to total salaries of $40,000 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.

 

 

 

 

 

 

 

 

 

Instructions

(a)  Compute the break-even point in dollars for 2014.

(b)  Compute the break-even point in dollars under each of the alternative courses of action. (Round to the nearest dollar.) Which course of action do you recommend?