Dousmann Corp.\'s sales slumped badly in 2014. For the first time in its history
ID: 2424422 • Letter: D
Question
Dousmann Corp.'s sales slumped badly in 2014. For the first time in its history, it operated at a loss. The company's income statement showed the following results from selling 696,000 units of product: sales $2,784,000; total costs and expenses $2,946,400; and net loss $162,400. Costs and expenses consisted of the amounts shown below Total Variable Fixed Cost of goods sold Selling expenses Administrative expenses $2,436,000 $1,670,400 83,520 55,680 $765,600 194,880 176,320 $2,946,400 $1,809,600 $1,136,800 278,400 232,000 Management is considering the following independent alternatives for 2015 I. Increase unit selling price 21% with no change in costs, expenses, and sales volume 2. Change the compensation of salespersons from fixed annual salaries totaling $174,000 to total salaries of $69,600 plus a 5% commission on sales (a) Compute the break-even point in dollars for 2014. (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 answers to 0 decimal places, e.g. 1,225.) Contribution margin for alterna Contribution margin for alternative 2 tive 1Explanation / Answer
Solution.
Calculation of break even point.
Breakeven point = Fixed cost / Contribution margin
= $1,136,800 / 35%
= $3,248,000.
b. Calculation of contribution margin.
Alternative 1.
Alternative 2.
c. Calculation of breakeven point
Alternative 1.
Breakeven point = $1,136,800 / 46.28%
= $245,635.26
Alternative 2.
Breakeven point = $1,011,520/ 33%%
= $3,065,212.12
Particular Variable cost Fixed Cost Cost of goods sold 1,670,400 765,600 Selling Expenses 83,520 194,880 Administrative Cost 55,680 176,320 Total 1,809,600 1,136,800 Unit 696,000 696,000 Per unit 2.60 1.63