Problem 18-3A Tanek Corp.\'s sales slumped badly in 2017. For the first time in
ID: 2563941 • 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 515,500 units of product: sales $2,577,500, total costs and expenses $2,680,600, and net loss $103,100. Costs and expenses consisted of the amounts shown beloww Total Variable Fixed Cost of goods sold Selling expenses Administrative expenses $2,206,340 $1,639,290 567,050 94,852 162,898 70,108 146,402 $2,680,600 $1,804,250 $876,350 257,750 216,510 Management is considering the following independent alternatives for 2018 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 $154,650 to total salaries of $61,860 plus a 6% 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 0 decimal places, e.g. 1,225.) Contribution margin for alternative 1 Contribution margin for alt ernative 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 O decimal places, e.g. 20% and also final answer to o decimal places, e.g. 1,225.) Break-even point for alternative 1 Break-even point for alternative 2 Which course of action do you recommend?Explanation / Answer
a) .Break Even point = $2921167
Contribution margin ratio = 2577500 - 1804250 / 2577500 = 30%
Break even point in dollars = Total Fixed costs / Contribution margin ratio = 876350 / 30% = 2921167
b). Contribution margin
Alternative 1 42%
Alternative 2 24%
Alternative 1,
Alternative 2
Break even point
Alternative 1 $2086548
Alternative 2 $3007083
Alternative 1
Break even point = 876350 / 42% = 2086548
Alternative 2
Break even point = (876350 - 154650) / 24% = 3007083
Alternative 1 would be recommanded
Selling price per unit