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.