Cruz Manufacturing had a bad year in 2010. For the first time in its history it

Question

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 79,300 units of product: Net sales $1,602,896; total costs and expenses $1,735,500; and net loss $132,604. Costs and expenses consisted of the following.

Total

Variable

Fixed

117,200

44,700

72,500

$1,735,500

$896,900

$838,600

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 $197,100 to total salaries of $42,500 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.




Incorrect.

Compute the break-even point in dollars for 2010. (Round your answers to 0 decimal places, e.g. 1,200,200. For computational purposes round unit costs and contribution margin ratios to 4 decimal places, e.g. 0.2250. Round all other computations to 0 decimal places, e.g. 1,500,100.)
$






Incorrect.

Compute the break-even point in dollars under each of the alternative courses of action. (Round your answers to 0 decimal places, e.g. 1,200,200. For computational purposes round unit costs and contribution margin ratios to 4 decimal places, e.g. 0.2250. Round all other computations to 0 decimal places, e.g. 1,500,100.)
1. Increase selling price $
2. Change compensation $
3. Purchase machinery $

   

Total

Variable

Fixed

  Cost of goods sold $1,196,000   $775,300   $420,700     Selling expenses 422,300   76,900   345,400     Administrative expenses

117,200

 

44,700

 

72,500

     

$1,735,500

 

$896,900

 

$838,600

Explanation / Answer

please have a look at the following question: Only numerical values are different from urs which i guess wont be a problem for u at all!! QUESTION: Cruz Manufacturing had a bad year in 2007. 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 $140,000s. Costs and expenses consisted of the following: 1st number : Total, 2nd number : Variable 3rd: 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 TOTAL $1,740,000 $900,000 $840,000 Management is considering the following independent alternatives for 2008. 1. Increase unit selling price 25% with no change in costs, expenses, and sales volume. 2. 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. 3. Purchase new high-tech factory machinery that will change the proportion between variable and fixed cost of goods sold to 50:50. Questions: Compute the break-even point in dollars under each of the alternative courses of action. (Round your answers to 0 decimal places.) 1-Increase selling price ( ) 2-Change compensation $ ( ) 3-Purchase machinery $ ( ) ANSWER: Answering all the questions, my first step will be calculating BE Quantity and then BE in dollars BE Q formula=FC/(P (unit) - VC (unit)) 1. FC=840000 (I have added up all FC), P=20*1.25=25 (increase in price by 25%), VC (unit)=Total VC/Qsales=900000/80000=11.25 BE Q=840000/(25-11.25)=61091 BE in dollars(revenue to get 0 profit)=61091*25=1527273 $ To test (needed to check whether the calculation was done properly): Sales Q*P=1527273 VC Q(BE)*VC(unit)=61091*11.25=687273 FC=840000 Profit=0 2. FC=840000-200000 (decrease by 200000)+40000 (increase instead by 40000)=680000 VC (unit)=11.25 (from 1st case) + 5%*20 (SellingP) (it is 5% commissions per unit on net sales)=12.25 BE Q=680000/(20 (original sales P)-12.25)=87742 BE In $=87742*20=1754839 To test (needed to check whether the calculation was done properly): Sales Q*P=87724*20=1754839 VC Q(BE)*VC(unit)=87742*12.25=1074839 FC=680000 Profit=0 3. FC=VC=1740000/2=870000 VC (unit)=870000/80000=10.875 BE Q=870000/(20 (original sales P)-10.875)=95342 BE In $=95342*20=1906849 To test (needed to check whether the calculation was done properly): Sales Q*P=1906849 VC Q(BE)*VC(unit)=95342*10.875=1036849 FC=870000 Profit=0 obviously the first alternative is the best, however it might not be possible to increase selling price by 25% due to market conditions

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.