Compute the break even point in dollars

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Reference no: EM1372488

Cruz Manufacturing had a bad year in 2008. For 1st time in its history it operated at a loss. The firm's income statement showed the following results from selling 80,000 units of product: Net sales $1,600,000; total costs and expenses $1,740,000; and net loss $140,000. Costs and expenses consisted of the following.

Total Variable Fixed
Cost of goods sold $1,200,000 $780,000 $420,000
Selling expenses 420,000 75,000 345,000
Administrative expenses 120,000 45,000 75,000
$1,740,000 $900,000 $840,000

Management is considering the following independent alternatives for 2009.
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.

Hint:
Compute break-even point under alternative courses of action.

Instructions
(a) Compute the break-even point in dollars for 2008.

(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?

Reference no: EM1372488

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