Reference no: EM13589037

Dousmann Corp.'s sales slumped badly in 2014. For the first time in its history, it operated at a loss. The company's income statement showed the following results from selling 500,000 units of product: sales $2,500,000; total costs and expenses $2,600,000; and net loss $100,000. Costs and expenses consisted of the amounts shown below.

                                                Total                Variable           Fixed

Cost of goods sold                  2,140,000        1,540,000        600,000

Selling expenses                      250,000           92,000             158,000

Administrative expenses         2,600,000        1,700,000        900,000

Management is considering the following independent alternatives for 2015.

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 5% commission on sales.

(a) Compute the break-even point in dollars for 2014. (Round final answer to 0 decimal places, e.g. 1,225.)

Break-even point in dollars =?           

(b) Compute the contribution margin under each of the alternative courses of action. (Round final answer to 0 decimal places, e.g. 1,225.)

Contribution margin for alternative 1 = ??%

Contribution margin for alternative 2 = ??%

Compute the break-even point in dollars under each of the alternative courses of action. (Round selling price per unit to 2 decimal places, e.g. 5.25 and other calculations to 0 decimal places, e.g. 20% and also final answer to 0 decimal places, e.g. 1,225.)

Break-even point for alternative 1                 

$??

Break-even point for alternative 2                 

$??

Which course of action do you recommend

1 or 2