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 76,100 units of product: Net sales $ 1,491,560 ; total costs and expenses $ 1,758,600 ; and net loss $ 267,040 . Costs and expenses consisted of the following.
| Total | Variable | Fixed | ||||
| Cost of goods sold | $ 1,208,200 | $ 784,100 | $ 424,100 | |||
| Selling expenses | 419,300 | 74,000 | 345,300 | |||
| Administrative expenses | 131,100 | 52,000 | 79,100 | |||
| $ 1,758,600 | $ 910,100 | $ 848,500 |
Management is considering the following independent alternatives for 2014.
| 1. | Increase unit selling price 29 % with no change in costs and expenses. | |
| 2. | Change the compensation of salespersons from fixed annual salaries totaling $ 200,000 to total salaries of $ 37,500 plus a 5% commission on net sales. | |
| 3. | Purchase new high-tech factory machinery that will change the proportion between variable and fixed cost of goods sold to 50:50. |