Question

Crane Corp.’s sales slumped badly in 2020. For the first time in its history, it operated at a loss. The company’s income statement showed the following results from selling 590,500 units of product: sales $2,952,500, total costs and expenses $3,050,875, and net loss $98,375. Costs and expenses consisted of the amounts shown below. Total Variable Fixed Cost of goods sold $2,507,615 $2,025,415 $482,200 Selling expenses 295,250 108,652 186,598 Administrative expenses 248,010 80,308 167,702 $3,050,875 $2,214,375 $836,500 Management is considering the following independent alternatives for 2021. 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 $177,150 to total salaries of $70,860 plus a 5% commission on sales.

Compute the break-even point in dollars for 2020. Break-even point

Compute the contribution margin under each of the alternative courses of action.

Contribution margin for alternative 1		%
Contribution margin for alternative 2		%

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

Break-even point for alternative 1		$
Break-even point for alternative 2		$

Which course of action do you recommend?

Answer 1

Answers A) Break Even Point in Dollars 3346000 B) Contribution Margin for Alternative 1 40% Contribution Margin for Alternative 2 20% C) Break Even Point for Alternative 1 2091250 Break Even Point for Alternative 2 3651050 Whichcourse of Action Do you recommend Increasing Selling Price: Alternative 1

total Variable 25076152025415 2952501 108652 248010 80308 3050875 2214375 Cost of goods Sold Selling Expenses Administrative Expenses total Sales Revneue Less:Varaible Cost Contribution Margin Less: Fixed Cost Net Loss Fixed 482200 186598 167702 836500 2952500 2214375 738125 836500 -98375 Break Even Dollars = Fixed Cost / CM Ratio CM Ratio = Contribution Margin / Sales CM Ratio = 738125/2952500 Break Even Dollars =836500/25% 25.00% 3346000

IF Units Selling Price is Increased by 25% Sales Revneue =2952500*1.25 3690625 Less:Varaible Cost 2214375 Contribution Margin 1476250 CM Ratio = 1476250/3690625 40.00% Break Even Dollars =836500/40% 2091250 Compensations to Sales Persona from Fixed Annula Salaries to $70860 Plus 5% Common on net Sales Total Variable Fixed Reveised cost Data Cost of goods Sold 25076152025415 482200 Selling Expenses 336585 256277 80308 Administrative Expenses 248010 80308 167702 total 30922102362000 730210 Sales Revneue 2952500 Less:Varaible Cost 2362000 Contribution Margin 590500 CM Ratio = 590500/2952500 20.00% Break Even Dollars =730210/20% 3651050