Reference no: EM13568972

Werth & Garza Manufacturing's sales slumped badly in 2013 due to so many people purchasing gifts online. The company's income statement showed the following results from selling 500,000 units of product: net sales $2,125,000; total costs and expenses $2,500,000; and net loss $375,000. Costs and expenses consisted of the following:

                                        Total                 Variable                   Fixed  

Cost of goods sold       $2,000,000          $1,300,000           $700,000

Selling expenses            200,000                50,000                 150,000

Administrative expenses       300,000        150,000                150,000

                                            $2,500,000   $1,500,000           $1,000,000

Management is considering the following alternative for 2013:

Purchase new automated equipment that will change the proportion between variable and fixed expenses sold to 45% variable and 55% fixed.

Instructions

(a)Compute the break-even point in dollars for 2013.

(b)Compute the break-even point in dollars under the alternative course of action.