Dousmann Corp.âs sales slumped badly in 2014. For the first time in its history,

Question

Dousmann Corp.âs sales slumped badly in 2014. For the first time in its history, it operated at a loss. The companyâs income statement showed the following results from selling 500,000 units of product: sales $2,500,000; total costs and expenses $2,600,000; and net loss $100,000. Costs and expenses consisted of the amounts shown below.

(1) Increase unit selling price 20% with no change in costs, expenses, and sales volume. Compute the contribution margin ratio and break-even point in dollars. (Round answers to 0 decimal places, e.g. 25 or 25%)

The Contribution Margin Ratio:

The break-even point in $:

(2) Change the compensation of salespersons from fixed annual salaries totaling $150,000 to total salaries of $60,000 plus a 5% commission on net sales. Compute the contribution margin ratio and break-even point in dollars. (Round answers to 0 decimal places, e.g. 25 or 25%)

The Contribution Margin Ratio:

THe break-even point in $:

Total Variable Fixed Cost of goods sold $2,140,000 $1,540,000 $600,000 Selling expenses 250,000 92,000 158,000 Administrative expenses 210,000 68,000 142,000 $2,600,000 $1,700,000 $900,000

Explanation / Answer

1) The Contribution Margin Ratio: 43%

THe break-even point in $ 20,93,023

2) The Contribution Margin Ratio: 32%

THe break-even point in $29,21,875

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