Dousmann Corp.s sales slumped badly in 2014. For the first time in its history,
ID: 2417870 • Letter: D
Question
Dousmann Corp.s sales slumped badly in 2014. For the first time in its history, it operated at a loss. The companys income statement showed the following results from selling 500,000 units of product: sales $2,500,000; total costs and expenses $2,600,000; and net loss $100,000. Costs and expenses consisted of the amounts shown below.
Total
Variable
Fixed
Management is considering the following independent alternatives for 2015.
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 $150,000 to total salaries of $60,000 plus a 5% commission on sales
Instructions
A) Compute the break-even point in dollars for 2014
B) Compute the break-even point in dollars under each of the alternative courses of action.
Total
Variable
Fixed
Cost of goods sold $2,140,000 $1,590,000 $550,000 Selling expenses 250,000 92,000 158,000 Administrative expenses 210,000 68,000 142,000 $2,600,000 $1,750,000 $850,000Explanation / Answer
Sales = $2,500,000
COGS = $2,140,000
Less- variable cost = $160,000
Contribution = $200,000
A) Computation of break-even point in dollars for 2014
= fixed cost / contribution margin
= 300000 / 200000
= $1.5
b) 1. Increase unit selling price 20% with no change in costs, expenses, and sales volume.
Selling price = 2500000 / 500000 = $5
Increase in unit selling price = $ 5 * (1+ 0.20) = 6
Sales = 500000*6 = 3000000
Less- COGS = $2140000
Less- variable cost = $160000
Contribution = $700000
Break even point = = fixed cost / contribution margin
= 300000 / 700000
= 0.428571
2. Change the compensation of salespersons from fixed annual salaries totaling $150,000 to total salaries of $60,000 plus a 5% commission on sales
Sales = 2500000
Less – COGS = 2140000
Less variable cost = 160000 + 5% *2500000 = 285000
Contribution = 75000
Fixed cost = 300000-150000+60000 = 210000
Breakeven point = 210000/75000
=$2.8
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.