Managerial Accounting: P22-3A Gorham Manufacturing's sales slumped badly

Managerial Accounting 
Gorham Manufacturing's sales slumped badly in 2010. For the first time in its history, it operated at a loss. The company's income statement showed the following results from selling 600,000 units of product: Net sales $2,400,000; total costs and expenses $2,540,000; and net loss $140,000. 
Costs and expenses consisted of the amounts shown below. 
Total Variable Fixed 
Cost of goods sold 2,100,000 1,440,000 660,000 
Selling expenses 240,000 72,000 168,000 
Administrative expenses 200,000 48,000 152,000 
2,540,000 1,560,000 980,000 

Management is considering the following independent alternatives for 2011. 
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 $210,000 to total salaries of $60,000 plus a 5% commission on net sales. 
3. Purchase new automated equipment that will change the proportion between variable and fixed cost of goods sold to 54% variable and 46% fixed. 

a. Compute the break-even point in dollars for 2010. 
b. Compute the break-even point in dollars under each of the alternative courses of action. (Round ratios and final answers to 0 decimal places, e.g. 125.) 
c. Which course of action do you recommend?
Powered by