TypeFredonia Inc. had a bad year in 2013. For the first time in its history, it
ID: 2698423 • Letter: T
Question
TypeFredonia Inc. had a bad year in 2013. For the first time in its history, it operated at a loss. The company’s income statement showed the following results from selling 75,300 units of product: Net sales $1,483,410; total costs and expenses $1,741,900; and net loss $258,490. Costs and expenses consisted of the following.
Management is considering the following independent alternatives for 2014.
(a) Compute the break-even point in dollars for 2014. (Round contribution margin ratio to 4 decimal places e.g. 0.2512 and final answers to 0 decimal places, e.g. 2,510.)
(b) Compute the break-even point in dollars under each of the alternative courses of action. (Round contribution margin ratio to 4 decimal places e.g. 0.2512 and final answers to 0 decimal places, e.g. 2,510.)
your question here
Total Variable Fixed Cost of goods sold $1,207,200 $782,400 $424,800 Selling expenses 419,000 71,600 347,400 Administrative expenses 115,700 47,400 68,300 $1,741,900 $901,400 $840,500Explanation / Answer
The contibution margin is .3923 and the fixed costs are 840,500. So the break even point is 840,500/.3923= 2,142,493.
If the selling price is increased 25% the contibution margin goes up to .5139 so the new break even is 1,635,532.
If the sales compensation is changed the contibution margin goes doen to .3423 and the fixed costs down to 681,900 so the break even is 1,992,112
If the cost structure is changed the fixed costs become 870,950 and the contibution margin .4129 so the break even is 2,109,348.
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