Problem 18-3A Tanek Corp.\'s sales slumped badly in 2017. For the first time in
ID: 2406936 • Letter: P
Question
Problem 18-3A Tanek Corp.'s sales slumped badly in 2017. For the first time in its history, it operated at a loss. The company's income statement showed the following results from selling 540,500 units of product: sales $2,702,500, total costs and expenses 2,810,600, and net loss $108,100. Costs and expenses consisted of the amounts shown below. Total Variable Fixed Cost of goods sold Selling expenses Administrative expenses $2,313,340 $1,718,790 $594,550 99,452 170,798 73,508 153,502 $2,810,600 $1,891,750 $918,850 270,250 227,010 Management is considering the following independent alternatives for 2018 1. Increase unit selling price 23% with no change in costs, expenses, and sales volume 2. Change the compensation of salespersons from fixed annual salaries totaling $162,150 to total salaries of $64,860 plus a 5% commission on sales. (a) Compute the break-even point in dollars for 2017. (Round final answer to 0 decimal places, e.g. 1,225.) Break-even point (b) Compute the contribution margin under each of the alternative courses of action. (Round final answer to O decimal places, e.g. 1,225.) Contribution margin for alternative 1 Contribution margin for alternative 2 Compute the break-even point in dollars under each of the alternative courses of action. (Round selling price per unit to 2 decimal places, e.g. 5.25 and other calculations to 0 decimal places, e.g. 20% and also final answer to 0 decimal places, eg. 1,225.) Break-even point for alternative 1 Break-even point for alternative 2 Which course of action do you recommend?Explanation / Answer
Answer:
Alternative 1 : old sale price = 2702500/540500 = 5 per unit
New sale price = 5 + 23% = 6.15 per unit
Therfore new sales = 540500×6.15 = 3324075
Alternative 2: new fixed cost = 918850-162150+64860 = 821560
New variable cost = 1891750 + 5% of 2702500 = 2026875
A) . BEP in dollar = 3062833
Explanation:
BEP = FC/P.V. ratio
P.v. ratio = contribution/sales
Contribution = sales - V.C. = 2702500-1891750 =810750
P.v. ratio = 810750/2702500 = 30%
BEP = 918850/30% = 3062833
B) Contribution margin = sales-variable cost/sales × 100%
For alternative 1 = 3324075-1891750/3324075 = 43.089%
For alternative 2 = 2702500-2026875/2702500 = 25%
C)
BEP For alternative 1 = FC/cont. Margin = 918850/43.089% = 2132446.796
BEP for alternative 2 = FC/CONT. margin = 821560/25% = 3286240
Profit from alternative 1 = 513475
Profit from alternative 2 = (145935)
Therefore alternative 1 is recommended