Fredonia Inc. had a bad year in 2013. For the first time in its history, it operated at a loss....bradib2
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 78,000 units of product: Net sales $1,536,600; total costs and expenses $1,740,200; and net loss $203,600. Costs and expenses consisted of the following.
|Cost of goods sold||$1,202,800||$780,600||$422,200|
Management is considering the following independent alternatives for 2014.
|1.||Increase unit selling price 29% with no change in costs and expenses.|
|2.||Change the compensation of salespersons from fixed annual salaries totaling $203,800 to total salaries of $43,200 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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