R19-3B Olgivie Company had a bad year in 2013. For the first time in its history, it oper- ated at a loss. The company's income statement showed the following results from selling 60,000 units of product: sales $1,800,000; total costs and expenses $2,010,000; and net loss $210,000. Costs and expenses consisted of the amounts shown below. Total Variable Fixed Cost of goods sold Selling expenses Administrative expenses $ 930,000 125,000 115,000 $420,000 355,000 65,000 $840,000 $1,350,000 480,000 180,000 $2,010,000 $1,170,000 Management is considering the following independent alternatives for 2014. 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 $200,000 to total salaries of $20,000 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. Instructions (a) Compute the break-even point in dollars for 2013. (b) Compute the break-even point in dollars under each of the alternative courses of action. (Round all ratios to nearest full percent.) Which course of action do you recommend?

R19-3B Olgivie Company had a bad year in 2013. For the first time in its history, it oper- ated at a loss. The company's income statement showed the following results from selling 60,000 units of product: sales $1,800,000; total costs and expenses $2,010,000; and net loss $210,000. Costs and expenses consisted of the amounts shown below. Total Variable Fixed Cost of goods sold Selling expenses Administrative expenses $ 930,000 125,000 115,000 $420,000 355,000 65,000 $840,000 $1,350,000 480,000 180,000 $2,010,000 $1,170,000 Management is considering the following independent alternatives for 2014. 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 $200,000 to total salaries of $20,000 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. Instructions (a) Compute the break-even point in dollars for 2013. (b) Compute the break-even point in dollars under each of the alternative courses of action. (Round all ratios to nearest full percent.) Which course of action do you recommend?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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