Tanek Corp.s sales slumped bady in 207.Fos $3,070,600, and net loss $118,100. Co
ID: 2513555 • Letter: T
Question
Tanek Corp.s sales slumped bady in 207.Fos $3,070,600, and net loss $118,100. Costs and expenses consisted of the amounts shown 17. For the first time in its history, it operated at a loss. The company's income statement showed the following selling 590,500 units of product: sales $2,952,500, t below. Total Variable Fixed Cost of goods sold Selling expenses Administrative expenses $2,527,340 $1,877,790 $649,550 295,250 108,652 186,598 80,308 167,702 $3,070,600 $2,066,750 $1,003,850 248,010 Management is considering the following independent alternatives for 2018 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 $177,150 to total salaries of $70,860 plus a 6% commission on sales. (a) Compute the break-even point in dollars for 2017. (Round final answer to O decimal places, e.g. 1,225.) Break-even point (b) Compute the contribution margin under cach of the alternative courses of action. (Round final answer to o decimal places, e.g. 1,225.) Contribution margin for alternative 1 Contribution margin for alternative 2 Compute the break-even point in dollars under each of the alternative courses of action. (Round selling calculations to 0 decimal places, e.g. 20% and also final answer to 0 decimal places, e.g. 1,225.) price per unit to 2 decimal places, e-g. 5.25 and other Break-even point for alternative 1
Explanation / Answer
Computation of Selling Price Per unit
A
No of Units Sold
590,500
B
Sales
$ 2,952,500.00
C=B/A
Selling Price Per Unit
$ 5.00
Computation of Variable Cost and Selling Price Per unit
A
No of Units Sold
590,500
Variable Cost
Cost of Goods Sold
$ 1,877,790.00
Selling Expenses
$ 108,652.00
Administrative Expenses
$ 80,308.00
B
Total Variable Cost
$ 2,066,750.00
C=B/A
Variable Cost Per Unit
$ 3.50
Contribution per Unit= Selling Price – Variable Cost per Unit=$5.00-$3.50=$1.50
a) Break even point= Fixed Cost/Contribution per Unit
=$1,003,850/$1.50
=669,233 units
b)
1) If sales price increase by 20% New Selling Price will be $5.00 x 1.20=$6.00
Contribution = Selling Price- Variable Cost= $6.00-$3.50=$2.50
Contribution margin = $2.50/$6.00 x 100= 41.67%
Break even point in $= $1,003,850/35.67%= $ 2,814,533
2) reduction in Fixed Salary =$177,150-$70,860=$106,290
Hence total reduction in fixed Cost= $1,003,850-$106,290=$897,560
Sales commission on sales =590,500 x 5 x 6%= $177,150
New Variable Cost = Existing Variable Cost+ Sales commission
=$2,066,750 +$177,150
= $ 2,243,900
Sales = $2,952,500
Contribution margin= $2,952,500-$2,279,330=$708,600
Contribution margin % =Contribution/ Sales x 100 =$708,600/$2,952,500x 100=24%
Break even point in $=Fixed Cost/ Contribution margin=$897,560/24%= $ 3,739,833
Computation of Selling Price Per unit
A
No of Units Sold
590,500
B
Sales
$ 2,952,500.00
C=B/A
Selling Price Per Unit
$ 5.00
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