Giere Manufacturing had a bad year in 2011. For the first time in its history it

Question

Giere Manufacturing had a bad year in 2011. 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 $140,000. Costs and expenses consisted of the following.
                                      Total          Variable      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
____________________________________________________
                                   $1,740,000      $900,000      $840,000



Management is considering the following independent alternatives for 2012.

Increase unit selling price 25% with no change in costs and expenses.
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.
Purchase new high-tech factory machinery that will change the proportion between variable and fixed cost of goods sold to 50:50.


Compute the break-even point in dollars for 2011. (Round answers to 0 decimal places, e.g. 125. For computational of unit costs and contribution margin ratios, round to 4 decimal places, e.g. 10.2520. Round all other computations to 0 decimal places, e.g. 125.)
$______________




Compute the break-even point in dollars under each of the alternative courses of action. (Round answers to 0 decimal places, e.g. 125. For computational of unit costs and contribution margin ratios, round to 4 decimal places, e.g. 10.2520. Round all other computations to 0 decimal places, e.g. 125.)
1. Increase selling price    $______
2. Change compensation   $______
3. Purchase machinery      $______

Explanation / Answer

dollar sales to break even= fixed expenses/CM ratio CM ratio= (1600000-900000)/1600000 = 0.4375 break even point in dollars in 2011 = 840000/.4375 = 1909090.909 break even point for: 1. Increase selling price 1527272.727 2. Change compensation 427096.7742 3. Purchase machinery 3138461.538

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