Blue Spruce Corp.’s sales slumped badly in 2017. 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 $3,070,600,
and net loss $118,100. Costs and expenses consisted of the amounts
shown below.
Total |
Variable |
Fixed |
||||
Cost of goods sold | $2,527,340 | $1,877,790 | $649,550 | |||
Selling expenses | 295,250 | 108,652 | 186,598 | |||
Administrative expenses | 248,010 | 80,308 | 167,702 | |||
$3,070,600 | $2,066,750 | $1,003,850 |
Management is considering the following independent alternatives
for 2018.
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 $177,150 to total salaries of $70,860 plus a 6% commission on sales. |
(a) Compute the break-even point in dollars for
2017. (Round final answer to 0 decimal places, e.g.
1,225.)
Break-even point | $ |
(b) Compute the break-even point in dollars under
each of the alternative courses of action. (Round
selling price per unit to 2 decimal places, e.g. 5.25 and other
calculations to 0 decimal places, e.g. 20% and also final answer to
0 decimal places, e.g. 1,225.)
Break-even point for alternative 1 | $ | |
Break-even point for alternative 2 | $ |
Which course of action do you recommend?
Alternative 1Alternative 2
Blue Spruce Corp.’s sales slumped badly in 2017. For the first time in its history, it operated at a loss. The company’s...
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