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 76,500 units of product: Net sales $1,484,100; total costs and expenses $1,722,200; and net loss $238,100. Costs and expenses consisted of the following.
|Cost of goods sold||$1,198,300||$775,600||$422,700|
Management is considering the following independent alternatives for 2014.
|1.||Increase unit selling price 24% with no change in costs and expenses.|
|2.||Change the compensation of salespersons from fixed annual salaries totaling $195,100 to total salaries of $38,800 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.|
(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.)
(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.)
|1.||Increase selling price|
Which course of action do you recommend?
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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 selling76,500units of …