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.
| 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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