Managerial Accounting: P22-3A Dousmann Corp.’s sales slumped badly

Managerial Accounting
P22-3A Compute break-even point under alternative courses of action
Dousmann Corp.’s sales slumped badly in 2014. For the first time in its history, it operated at a loss. The company’s income statement showed the following results from selling 500,000 units of product: sales $2,500,000; total costs and expenses $2,600,000; and net loss $100,000. Costs and expenses consisted of the amounts shown below.
Total Variable Fixed
Cost of Goods Sold 2,140,000 1,540,000 600,000
Selling Expenses 250,000 92,000 158,000
Administrative Expenses 210,000 68,000 142,000
2,600,000 1,700,000 900,000

Management is considering two independent alternatives for the 2015.
A. Increase unit selling price 20% with no change in costs, expenses, or sales volume.
B. Change the compensation of salespersons from fixed annual salaries totaling $150,000 to total salaries of $60,000 plus a 5% commission on sale

Instructions:
1.) Compute break-even point in dollars for 2014.
2.) Compute the breakeven point for each alternative course of action (Round all ratios to the nearest full percent). What course of action do you recommend and why?
Powered by