| In the month of June, Jose Hebert s Beauty Salon gave 3,580 haircuts, shampoos, and permanents at an average price of $36. During the month, fixed costs were $16,870 and variable costs were 75% of sales.
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Determine the contribution margin in dollars, per unit and as a ratio. (Round contribution margin per unit and contribution margin ratio to 2 decimal places, e.g. $5.25 & 10.50%.)
| Contribution margin |
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$ |
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| Contribution margin per unit |
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$ |
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| Contribution margin ratio |
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% |
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Fredonia 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 75,400 units of product: Net sales $1,485,380; total costs and expenses $1,736,000; and net loss $250,620. Costs and expenses consisted of the following.
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Total |
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Variable |
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Fixed |
| Cost of goods sold |
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$1,201,500 |
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$779,500 |
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$422,000 |
| Selling expenses |
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426,800 |
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78,300 |
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348,500 |
| Administrative expenses |
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107,700 |
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46,500 |
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61,200 |
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$1,736,000 |
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$904,300 |
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$831,700 |
Management is considering the following independent alternatives for 2014.
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Increase unit selling price 28% with no change in costs and expenses. |
| 2. |
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Change the compensation of salespersons from fixed annual salaries totaling $202,700 to total salaries of $42,700 plus a 5% commission on net sales. |
| 3. |
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Purchase new high-tech factory machinery that will change the proportion between variable and fixed cost of goods sold to 50:50. |
(a) Compute the break-even point in dollars for 2014.
(Round contribution margin ratio to 4 decimal places e.g. 0.2512 and final answers to 0 decimal places, e.g. 2,510.)
(b) Compute the break-even point in dollars under each of the alternative courses of action.
(Round contribution margin ratio to 4 decimal places e.g. 0.2512 and final answers to 0 decimal places, e.g. 2,510.)
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Break-even point |
| 1. |
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Increase selling price |
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$ |
| 2. |
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Change compensation |
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$ |
| 3. |
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Purchase machinery |
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$ |
Which course of action do you recommend Alternative 1Alternative 2Alternative 3
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