Question

Blue Spruce Corp.’s sales slumped badly in 2017. For the first time in its history, it operated at a loss. The company’s...

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

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Answer #1

Ansuer: Computalion cf Bieak cven point in dollavs; gr Toteel Sale Selling price pe urut= eles uruts $295,sDo $S pen unit VaiJncrease unit selling price 20l. with no change in ce, experg es and sale eolume-- $5 Csx20 New seling prce= vaniable cost peFIxed selling expens e = $ l86,59e - (411 - $F0860) (&6S98106 290 $80,308 649,550 +80,308 (61,02 Tota ked expenfes g4560 Sellcon clusibn option 1 does gnes a larger Contn bution margin and a smaller breateven would seem fo Ihe betler option So Th pon

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