Reference no: EM132853848

Problem - Gorham Manufacturing's sales slumped badly in 2020. For the first time in its history, it operated at a loss. The company's income statement showed the following results from selling 57,000 units of product: net sales $1,539,000; total costs and expenses $1,834,488; and net loss $295,488. Costs and expenses consisted of the amounts shown below:

	Total	Variable	Fixed
Cost of goods sold	$1,189,488	$794,520	$394,968
Selling expenses	463,000	130,000	333,000
Administrative expenses	182,000	122,000	60,000
	$1,834,488	$1,046,520	$787,968

Management is considering the following independent alternatives for 2021.

1. Increasing the unit selling price by 25% with no change in costs, expenses or sales volume.

2. Change the compensation of salespersons from fixed annual salaries totalling $217,000 to total salaries of $20,000 plus a 5% commission of 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

Required - Calculate the breakeven point in dollars under each of the alternative courses of action.

1. Breakeven point of unit selling price is increased by 25%.

2. Breakeven point if there is a change in compensation.

3. Breakeven point if there is a purchase of new high tech factory machinery.