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p18 3a giere manufacturing s sales slumped badly in 2012 539054

P18-3A Giere Manufacturing’s sales slumped badly in 2012. 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: Net 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.

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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

$980,000

Management is considering the following independent alternatives for 2013.

1. Increase unit selling price 20% 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 5% commission on net sales.

Instructions

(a) Compute the break-even point in dollars for 2012.

(b) Compute the break-even point in dollars under each of the alternative courses of action.

(Round all ratios to nearest full percent.) Which course of action do you recommend?

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