Tanek Corp.’s sales slumped badly in 2017. For the first time in its history, it
ID: 2571908 • Letter: T
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 515,500 units of product: sales $2,577,500, total costs and expenses $2,680,600, and net loss $103,100. Costs and expenses consisted of the amounts shown below.
Total
Variable
Fixed
Management is considering the following independent alternatives for 2018.
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 answer to 0 decimal places, e.g. 1,225.)
Total
Variable
Fixed
Cost of goods sold $2,206,340 $1,639,290 $567,050 Selling expenses 257,750 94,852 162,898 Administrative expenses 216,510 70,108 146,402 $2,680,600 $1,804,250 $876,350Explanation / Answer
Current: Sales $ 2577,500 Sales unit 515500 unts Selling price (2577500/515500) = $5 per unit Total Variable cost = $ 1804,250 Total contribution = Sales - variable cost = 2577,500 -1804,250 = $ 773,250 Variable cost per unit (1804,250/515500) = $ 3.50 per unit Contributionper unit = Selling price- variable cost per unit = 5-3.50 = $ 1.50 per unit CM ratio = Contribution per unit / Selling price per unit *100 = 1.50 /5 *100 = 30% Total Fixed cost = $ 876,350 Alternative-1, Selling price increase by 21% Revised Selling price = 5+21% = $6.05 per unit Revised contribution per unit = 6.05-3.50 = $ 2.55 per unit CM ratio = 2.55/6.05 *100 = 42.15% Break even in $ = Total Fixed cost / CM ratio = 876,350 /42.15 *100 = $2079,122 Alternative-2, Change in sales remuneration Revised CM ratio = 30%-6% (commision on sales) = 24% Revised Fixed cost = 876350 - 92790(saving in salaries) = $ 783,560 Break even In $ = Total Fixed cost / CM ratio *100 783,560 /24 *100 = $3264,833
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