Tanek Corp.s sales slumped badly in 2017. For the first time in its history, it

Question

Tanek Corp.s sales slumped badly in 2017. For the first time in its history, it operated at a loss. The company's income statement showed the following results from selling 585,500 units of product: sales $2,927,500, total costs and expenses 53,044,600, and net loss $117,100, Costs and expenses consisted of the amounts shown below. Total Variable Fixed Cost of goods sold Selling expenses Administrative expenses $2,505,940 S1,861,890 $644,050 107,732 185,018 79,628166,282 $3,044,600 2,049,250 $995,350 292,750 245,910 Management is considering the following independent alternatives for 2018. 1. Increase unit selling price 21% with no change in costs, expenses, and sales volume. 2. Change the compensation of salespersons from fixed annual salaries totaling $175,650 to total salaries of $70,260 plus a 5% commission on sales. (a) Compute the break-even point in dollars for 2017. (Round final answer to 0 decimal places, e.g. 1,225.) Break-even point (b) Compute the contribution margin under each of the alternative courses of action. (Round final answer to 0 decimal places, e.g. 1,225.) Contribution margin for alteative 1 Contribution margin for alternative 2 Compute the break even point in dollars under each of the alternative courses of ction Round selling proce per unit to 2 decrmal places e.g. 5.25 and other calculations to 0 decrmal places, e g 20% and also final answer to 0 decimal places, e.g. 1,225.) Break-even point for alternative 1 Break-even point for altemative 2 s Which course of action do you recommend?

Explanation / Answer

(a) BEP 2017 = Fixed cost / (Selling price per unit - variable cost per unit)

Total Fixed cost = 995350

Selling price per unit = 2927500 / 585500

= 5

variable cost per unit = 3044600 / 585500

= 5.2

BEP = 995350 / (5 - 3.5)

= 995350 / 1.5

= 284386 units

in $ = 284386*5 = 1421929

(b) Contribution margin = Sales - variable cost / sales

alternative 1 -

Calculation of contribution under Alternative 1 -

Computation of contribution margin under alternative 2 -

(c) Computation of BEP under both Alternative -

BEP = Fixed cost / (Selling price per unit - variable cost per unit)

= 995350 / (6.05 - 3.5)

= 995350 / 2.55

= 390334 units

in $ = 390334*6.05

= 2361517

under 2nd Alternative -

Computation of Fixed cost -

BEP = 889960 / (5 - 3.75)

= 889960 / 1.25

= 237323 units

Please note all values are in $.

In case of any clarification required please comment.

Output 585500 Particulars Existing proposed Selling price per unit 5 6.05 Cost of goods sold 2505940 2505940 Selling expenses 292750 292750 administrative exp 245910 245910 Total Cost 3044600 3044600 Sales Value 2927500 3542275 Profit/(Loss) -117100 497675

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