Compute the break-even point in dollars under each of the

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Reference no: EM13576009

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 $2,135,000; and net loss $135,000. Costs and expenses consisted of the following.

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

Management is considering the following independent alternatives for 2014.

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

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.

Purchase new high-tech factory machinery that will change the proportion between variable and fixed cost of goods sold to 50:50.

a) Compute the break-even point in dollars for 2014. (Round contribution margin ratio to 4 decimal places e.g. 0.2512 and final answers to 0 decimal places, e.g. 2,510.)

Break-even point

(b) Compute the break-even point in dollars under each of the alternative courses of action. (Round contribution margin ratio to 4 decimal places e.g. 0.2512 and final answers to 0 decimal places, e.g. 2,510.)

		Break-even point
1.	Increase selling price	$
2.	Change compensation	$
3.	Purchase machinery	$

Reference no: EM13576009

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