P18-3A Giere Manufacturing’s sales slumped badly in 2012. 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 2013.
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 $150,000 to total salaries of $60,000 plus a 5% commission on net sales.
Instructions
(a) Compute the break-even point in dollars for 2012.
(b) Compute the break-even point in dollars under each of the alternative courses of action.
(Round all ratios to nearest full percent.) Which course of action do you recommend?