ac 2

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 76,500 units of product: Net sales $1,484,100; total costs and expenses $1,722,200; and net loss $238,100. Costs and expenses consisted of the following.

	Total	Variable	Fixed
Cost of goods sold	$1,198,300	$775,600	$422,700
Selling expenses	420,800	78,000	342,800
Administrative expenses	103,100	41,000	62,100
	$1,722,200	$894,600	$827,600

Management is considering the following independent alternatives for 2014.

1.		Increase unit selling price 24% with no change in costs and expenses.
2.		Change the compensation of salespersons from fixed annual salaries totaling $195,100 to total salaries of $38,800 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.

(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.)

Break-even point

$

[removed]

(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.)

		Break-even point
1.	Increase selling price	$ [removed]
2.	Change compensation	$ [removed]
3.	Purchase machinery	$ [removed]

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ac 2