Dousmann Corp.’s sales slumped badly in 2014. For the first time in its history,
ID: 2471574 • Letter: D
Question
Dousmann Corp.’s sales slumped badly in 2014. For the first time in its history, it operated at a loss. The company’s income statement showed the following results from selling 660,000 units of product: sales $2,640,000; total costs and expenses $2,794,000; and net loss $154,000. Costs and expenses consisted of the amounts shown below.
Total
Variable
Fixed
Management is considering the following independent alternatives for 2015.
(a) Compute the break-even point in dollars for 2014. (Round final answer to 0 decimal places, e.g. 1,225.)
$3080000
(b) Compute the contribution margin under each of the alternative courses of action. (Round final answers to 0 decimal places, e.g. 1,225.)
Compute the break-even point in dollars under each of the alternative courses of action. (Round selling price per unit to 2 decimal places, e.g. 5.25 and other calculations to 0 decimal places, e.g. 20% and also final answers to 0 decimal places, e.g. 1,225.)
Total
Variable
Fixed
Cost of goods sold $2,310,000 $1,584,000 $726,000 Selling expenses 264,000 79,200 184,800 Administrative expenses 220,000 52,800 167,200 $2,794,000 $1,716,000 $1,078,000Explanation / Answer
Selling price per unit=$2,640,000/660,000=$4
Cost goods sold cost per unit-Variable=$1,584,000/660,000=$2.4
Selling expenses per unit-Variable=$79,200/660,000=$0.12
Administrative expenses per unit variable=$52,800/660,000=$0.08
Total Fixed cost=$1,078,000
Contribution Per unit=$4-$2.4-$0.12-$0.08=$1.4
Break even in $=$1,078,000*$4/$1.4=$3,080,000
Alternative 1:
Revised selling Price=$4*1.21=$4.84
Contribution per unit=$4.84-$2.4-$0.12-$0.08=$2.24
Total Contribution=$2.24*660,000=$1,478,400
Break even point(in $)=$1,078,000*$4.84/$2.24=$2,329,250
Alternative 2:
Selling Commission per unit=$4*5%=$0.2
Revised fixed cost=$1,078,000-$165,000+$66,000=$979,000
Revised contribution=$1.4-$0.2=$1.2
Total contribution=$1.2*660,000=$792,000
Break even point(in $)=$792,000*$4/$1.2=$2,640,000
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