Fredonia Inc. had a bad year in 2013. For the first time in its history, it oper

Question

Fredonia Inc. had a bad year in 2013. For the first time in its history, it operated at a loss. The company%u2019s income statement showed the following results from selling 75,300 units of product: Net sales $1,475,880; total costs and expenses $1,744,200; and net loss $268,320. Costs and expenses consisted of the following. Total Variable Fixed Cost of goods sold $1,209,100 $784,900 $424,200 Selling expenses 410,500 70,200 340,300 Administrative expenses 124,600 49,000 75,600 $1,744,200 $904,100 $840,100
Management is considering the following independent alternatives for 2014. 1. Increase unit selling price 28% with no change in costs and expenses. 2. Change the compensation of salespersons from fixed annual salaries totaling $196,500 to total salaries of $36,000 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.) Break-even point
(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.) Break-even point 1. Increase selling price 2. Change compensation 3. Purchase machinery Total Variable Fixed Cost of goods sold $1,209,100 $784,900 $424,200 Selling expenses 410,500 70,200 340,300 Administrative expenses 124,600 49,000 75,600 $1,744,200 $904,100 $840,100

Explanation / Answer

Break-even point $2,037,997 Break-even point 1. Increase selling price $2153992 2. Change compensation $2037195 3. Purchase machinery $1922952

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