Compute the break-even point in dollars under each of the alternative courses of action. Which… 1 answer below »

Werner Manufacturing had a bad year 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 60,000 units of product: Net sales $1,500,000; total costs and expenses $1,890,000; and net loss $390,000. Costs and expenses consisted of the amounts shown below.

Total

Variable

Fixed

Cost of goods sold

$1,350,000

$ 930,000

$420,000

Selling expenses

420,000

65,000

355,000

Administrative expenses

120,000

55,000

65,000

$1,890,000

$1,050,000

$840,000

Management is considering the following independent alternatives for 2013.

1. Increase unit selling price 40% with no change in costs, expenses, and sales volume.

2. Change the compensation of salespersons from fixed annual salaries totaling $200,000 to total salaries of $30,000 plus a 4% 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 2012.

(b) Compute the break-even point in dollars under each of the alternative courses of action. Which course of action do you recommend?