Total Variable Fixed 120,000 45,000 75,000 $1,740,000 $900,000 $840,000 Manageme
ID: 2385750 • Letter: T
Question
Total
Variable
Fixed
120,000
45,000
75,000
$1,740,000
$900,000
$840,000
Management is considering the following independent alternatives for 2011.
$
Which alternative is the recommended course of action?
Cruz Manufacturing had a bad year in 2010. For the first time in its history it operated at a loss. The company's income statement showed the following results from selling 80,000 units of product: Net sales $1,600,000; total costs and expenses $1,740,000; and net loss $140,000. Costs and expenses consisted of the following.Total
Variable
Fixed
Cost of goods sold $1,200,000 $780,000 $420,000
Selling expenses 420,000 75,000 345,000
Administrative expenses
120,000
45,000
75,000
$1,740,000
$900,000
$840,000
Management is considering the following independent alternatives for 2011.
- Increase unit selling price 25% with no change in costs and expenses.
- Change the compensation of salespersons from fixed annual salaries totaling $200,000 to total salaries of $40,000 plus a 5% commission on net sales.
- Purchase new high-tech factory machinery that will change the proportion between variable and fixed cost of goods sold to 50:50.
Cruz Manufacturing had a bad year in 2010. For the first time in its history it operated at a loss. The company's income statement showed the following results from selling 80,000 units of product: Net sales $1,600,000; total costs and expenses $1,740,000; and net loss $140,000. Costs and expenses consisted of the following. Total Variable Fixed Cost of goods sold $1,200,000 $780,000 $420,000 Selling expenses 420,000 75,000 345,000 Administrative expenses 120,000 45,000 75,000 $1,740,000 $900,000 $840,000 Management is considering the following independent alternatives for 2011. Increase unit selling price 25% with no change in costs and expenses. Change the compensation of salespersons from fixed annual salaries totaling $200,000 to total salaries of $40,000 plus a 5% commission on net sales. Purchase new high-tech factory machinery that will change the proportion between variable and fixed cost of goods sold to 50:50. Compute the break-even point in dollars under each of the alternative courses of action. (Round your answers to 0 decimal places, e.g. 1,250,100. For computational purposes round unit costs and contribution margin ratios to 4 decimal places, e.g. 0.2375. Round all other computations to 0 decimal places, e.g. 450,000.) 1. Increase selling price $ 2. Change compensation $ 3. Purchase machinery $ Which alternative is the recommended course of action? Compute the break-even point in dollars for 2010. (Round your answers to 0 decimal places, e.g. 1,200,100. For computational purposes round unit costs and contribution margin ratios to 4 decimal places, e.g. 0.2550. Round all other computations to 0 decimal places, e.g. 50,000.) $