Question

Break even point for alternative 1 is?

Problem 18-4A a-b (Part Level Submission) (Video) Carla Vista 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 585,500 units of product: sales $2,927,500, total costs and expenses $3,036,000, and net loss $108,500. Costs and expenses consisted of the amounts shown below. Cost of goods sold Selling expenses Administrative expenses Total $2,497,340 292,750 245,910 $3,036,000 Variable $1,920,440 107,732 79,626 $2,107,800 Fixed $576,900 185,018 166,282 $928,200 Management is considering the following independent alternatives for 2021. 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 $175,650 to total salaries of $70,260 plus a 4% commission on sales. (ь) 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 two is?

Answer 1

b)

Total sales revenue (a)	$2,927,500
Number of units sold (b)	585,500
Selling price per unit (a/b)	$5
Alternative 1
Sales Revenue ($5*120/100 = $6 * 585,500 units)		$3,513,000
Less: Variable expenses:
Cost of goods sold	($1,920,440)
Selling expenses	($107,732)
Administrative expenses	($79,628)
Total Variable Expenses		($2,107,800)
Contribution Margin		$1,405,200
Contribution Margin Ratio ($1,405,200/$3,513,000*100)		40%
Total Fixed Costs:
Cost of goods sold	$576,900
Selling expenses	$185,018
Administrative expenses	$166,282
Total Fixed Costs (a)	$928,200
Contribution Margin Ratio (b)	40%
Break-even point in dollars ($928,200/0.40)	$2,320,500

Alternative 2
Sales Revenue		$2,927,500
Less: Variable costs:
Cost of goods sold	($1,920,440)
Selling expenses ($107,732 + [$2,927,500*4/100])	($224,832)
Administrative expenses	($79,628)
Total Variable Expenses		($2,224,900)
Contribution Margin		$702,600
Contribution Margin Ratio ($702,600/$2,927,500*100)		24%
Total Fixed Costs:
Cost of goods sold	$576,900
Selling expenses ($185,018 - $175,650 + $70,260)	$79,628
Administrative expenses	$166,282
Total Fixed Costs (a)	$822,810
Contribution Margin Ratio (b)	24%
Break-even point in dollars ($822,810/0.24)	$3,428,375