Question

Problem 19-01A (Video) Swifty Inc. had a bad year in 2019. For the first time in its history, it operated at a loss. The company's income statement showed the following results from selling 78,000 units of product: net sales $1,560,000; total costs and expenses $1,795,200; and net loss $235,200. Costs and expenses consisted of the following. Total Variable Fixed Cost of goods sold Selling expenses Administrative expenses $1,115,600 526,600 153,000 $1,795,200 $628,000 94,000 58,000 $780,000 $487,600 432,600 95,000 $1,015,200 Management is considering the following independent alternatives for 2020. 1. Increase unit selling price 25% with no change in costs and expenses. 2. Change the compensation of salespersons from fixed annual salaries totaling $ 202,000 to total salaries of $40,000 plus a 5% commission on net sales. 3. Purchase new high-tech factory machinery that will change the proportion between variable and fixed cost of goods sold to 50:50. (a) Compute the break-even point in dollars for 2019. (Round contribution margin ratio to 4 decimal places e.g. 0.2512 and final answer to 0 decimal places, e.g. 2,510.) Break-even points (b) Compute the break-even point in dollars under each of the alternative courses of action for 2020. (Round contribution margin ratio to 3 decimal places e.g. 0.251 and final answers to o decimal places, e.g. 2,510.) Break-even point 1. Increase selling price 2. Change compensation 3. Purchase machinery Which course of action do you recommend?

Answer 1

al Data total 1115600 526600 153000 1795200 Cost of goods Sold Selling Expenses Administrative Expenses total Sales Units Sales Revneue Less:Varaible Cost Contribution Margin Less: Fixed Cost Net Loss Variable Fixed 628000 487600 940001 432600 58000 95000 7800001015200 78000 1560000 780000 780000 1015200 -235200 Break Even Dollars = Fixed Cost / CM Ratio CM Ratio = Contribution Margin / Sales CM Ratio =780000/1560000 Break Even Dollars =1015200/50% 50.00% 2030400

IF Units Selling Price is Increased by 25% Sales Revneue = (1560000*1.25)) 1950000 Less:Varaible Cost 780000 Contribution Margin 1170000 CM Ratio - 1170000/1950000 60.00% Break Even Dollars =1015200/60% 1692000 Compensations to Sales Persona from Fixed Annula Salaries to $4000 Plus 5% Common on net Sales Total Variable Fixed Reveised cost Data Cost of goods Sold 1115600 628000 487600 Selling Expenses L 44260011720001 270600 Administrative Expenses 153000 58000 950001 total 1711200858000 853200 Sales Revneue 1560000 Less:Varaible Cost 858000 Contribution Margin 702000 CM Ratio =702000/1560000 45.00% Break Even Dollars =853200/45% 1896000

Change the Proportion of Cost of good sold of Variable and Fixed into 50:50 Reveised cost Data Total Variable Fixed Cost of goods Sold 1115600 557800 557800 Selling Expenses 526600 94000 432600 Administrative Expenses 153000 58000 95000 total 1795200 709800 1085400 Sales Revenue 1560000 Less:Varaible Cost 7098001 Contribution Margin 850200 CM Ratio = 850200/1560000 54.50% Break Even Dollars = 11085400/54.50% 1991560 Answers A) Break Even Point in Dollars 2030400 B) 1) increasing Selling Price 1692000 2) Change Compensation 1896000 3) Purchase Machinery 1991560 Whichcourse of Action Do you recommend Increasing Selling Price , alternative 1