Gorham Manufacturing\'s sales slumped badly in 2010. For the first time in its h

Question

Gorham Manufacturing's sales slumped badly in 2010. For the first time in its history, it operated at a loss. The company's income statement showed the following results from selling 600,000 units of product: Net sales $2,400,000; total costs and expenses $2,540,000; and net loss $140,000. Costs and expenses consisted of the amounts shown below. Total Variable Fixed Cost of goods sold $2,100,000 $1,440,000 $660,000 Selling expenses 240,000 72,000 168,000 Administrative expenses 200,000 48,000 152,000 $2,540,000 $1,560,000 $980,000 Management is considering the following independent alternatives for 2011. 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 $210,000 to total salaries of $60,000 plus a 5% commission on net sales.

Explanation / Answer

THIS WILL BE HELPFUL FOR YOU AND PL RATE ME FIRST 1 - Add 20% of 2.4 mil = 480,000 #2 - From 150,000 to 60,000 + 72,000 (3% of 2,400,000), or 150,000 to 132,000 #3 - Total VC and FC in CGS - 2,100,000. Revised VC = 54%, or 1,134,000, and FC = 966,000 Change - VC (306,000) FC 306,000

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