Question

Oriole 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 555,500 units of product: sales $2,777,500, total costs and expenses $2,869,875, and net loss $92,375. Costs and expenses consisted of the amounts shown below. Cost of goods sold Selling expenses Administrative expenses Total $2,358,815 277,750 233,310 $2,869,875 Variable $1,905,365 102,212 75,548 $2,083,125 Fixed $453,450 175,538 157,762 $786,750 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 $166,650 to total salaries of $66,660 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 using the contribution margin ratio under each of the alternative courses of action. Break-even point for alternative 1 s Break-even point for alternative 2 Which course of action do you recommend?

Answer 1

Answers A) Break Even Point in Dollars 3147000 B) Contribution Margin for Alternative 1 40% Contribution Margin for Alternative 2 20% C) Break Even Point for Alternative 1 Break Even Point for Alternative 2 1966875 3433800 Whichcourse of Action Do you recommend Increasing Selling Price: Alternative 1

Data total Variable Fixed Cost of goods Sold Selling Expenses Administrative Expenses total Sales Revneue 2358815 1905365 453450 277750 102212 175538 233310 75548 157762 2083125 2869875 786750 2777500 Less:Varaible Cost 2083125 Contribution Margin 694375 Less: Fixed Cost Net Loss 786750 -92375 Break Even Dollars = Fixed Cost / CM Ratio %3D CM Ratio = Contribution Margin / Sales

IF Units Selling Price is Increased by 25% Sales Revneue = 2777500*1.25 Less:Varaible Cost Contribution Margin 3471875 2083125 1388750 CM Ratio = 1388750/3471875 Break Even Dollars =786750/40% 40.00% 1966875 Compensations to Sales Persona from Fixed Annula Salaries to $66660 Plus 5% Common on net Sales Variable Total Fixed Reveised cost Data Cost of goods Sold Selling Expenses Administrative Expenses total Sales Revneue Less:Varaible Cost Contribution Margin 2358815 1905365 453450 316635 241087 75548 233310 75548 157762 2908760 686760 2222000 2777500 2222000 555500 CM Ratio = 2777500/55500 20.00% Break Even Dollars =8367600/20% 3433800