Problem 18-3A Total Variable Fixed Warning Don\'t show me this message again for
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Problem 18-3A
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Problem 18-3A
Your answer is partially correct. Try again. 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 600,000 units of product: sales $2,400,000; total costs and expenses $2,540,000; and net loss $140,000. Costs and expenses consisted of the amounts shown below.Total
Variable
Fixed
Cost of goods sold $2,100,000 $1,440,000 $660,000 Selling expenses 240,000 72,000 168,000 Administrative expenses 200,000 48,000 152,000 $2,540,000 $1,560,000 $980,000Management is considering the following independent alternatives for 2015.
1. Increase unit selling price 22% with no change in costs, expenses, and sales volume. 2. Change the compensation of salespersons from fixed annual salaries totaling $150,000 to total salaries of $60,000 plus a 6% 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 $
2800000
(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 alternative 1
0.480
% Contribution margin for alternative 20.29
%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 answers to 0 decimal places, e.g. 1,225.)
Break-even point for alternative 1 $
2,064,621.04
Break-even point for alternative 2 $2,966,666.68
Which course of action do you recommend?
Alternative 1Alternative 2res_EAT_1349883358897_0_508851818950019_012
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Copyright © 2000-2016 by John Wiley & Sons, Inc. or related companies. All rights reserved.Explanation / Answer
Ans a Breakeven in $ 980000/.35 2800000 Contribution Margin ratio Cntribution margin/Sales (2400000-1560000)/2400000 0.35 Ans b Alternative 1 Selling price increased by 22% 2400000*1.22 2928000 Contribution margin Sales-Variable Cost 2928000-1560000 1368000 Ans $1368000 Contribution margin per unit 2.28 Contribution Margin ratio 0.47 C0ntribution margin/Sales (2928000-1560000)/2928000 0.47 % Selling price per unit (2928000/600000) 4.88 Alternative 2 Total Variable Fixed Cost of goods sold $2,100,000 $1,440,000 $660,000 Selling expenses 294,000 216,000 78,000 Administrative expenses 200,000 48,000 152,000 $2,594,000 $1,704,000 $890,000 Selling expenses 72000+6%*(2400000) 168000-150000+60000 Selling expenses 216000 78000 Contribution margin Sales-Variable Cost 2400000-1704000 $696,000 Ans Contribution margin per unit 696000/600000 $1.16 Contribution Margin ratio C0ntribution margin/Sales 696000/2400000 0.29 Ans 3 Alternative 1 Breakeven sales in $ 980000/.47 $ 2085106 Altermative 2 Breakeven sales in $ 890000/.29 $ 3068966