Reference no: EM13527337
Magic Manufacturing's sales slumped badly in 2012. For the first time in its history, itoperated at a loss. The company's income statement showed the following results from selling 600,000 units of product: Net sales $2,400,000; total costs and expenses $2,540,000; and net loss $140,000. Costs and expenses consisted of the amounts shown below.
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Total
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Variable
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Fixed
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Cost of goods sold
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$2,100,000
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$1,440,000
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$660,000
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Selling expenses
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240,000
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72,000
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168,000
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Administrative expenses
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200,000
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48,000
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152,000
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$2,540,000
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$1,560,000
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$980,000
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Management is considering the following independent alternatives for 2013.
1. 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 3% commission on net sales.
3. Purchase new automated equipment that will change the proportion between variable and fixed cost of goods sold to 54% variable and 46% fixed.
Instructions
(a) Compute the break-even point in dollars for 2012.
(b) Compute the break-even point in dollars under each of the alternative courses of action. Which course of action do you recommend?
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