Home / Questions / A Fredonia Inc. had a bad year in 2013. For the first time in its history, it operated a l
A Fredonia Inc. had a bad year in 2013. For the first time in its history, it operated a loss. The company's income statement showed the following results from selling 80,00 units of product: net sales $2,000,000; total costs and expenses $1,740,000; and net loss $135,000. Costs and expenses consisted of the following. Total Variable Fixed Cost of goods sold Selling expenses Administrative expenses $1,468,000 950,000518,000 517,000 92,000 58,000 425,000 150,000 92,000 $2,135,000$1,100,000 $1,035,000 Management is considering the following independent alternatives for 2014 1 . Increase unit selling price 25% with no change in costs and expenses. 2. Change the compensation of salespersons from fixed annual salaries totaling $200,0 to total salaries of $40,000 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. Instructions (a) Compute the break-even point in dollars for 2014 (b) Compute the break-even point in dollars under each of the alternative courses of action. (Round to the nearest dollar.) Which course of action do you recommend?
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