Gorham Manufacturing’s sales slumped badly in 2010. For the first time in its history, it operated at a loss. The company’s income statement showed the following results from selling 600,000 units of product: Net sales $2,390,000; total costs and expenses 2,540,000; and net loss $150,000. Costs and expenses consisted of the amounts shown below. Total Variable Cost of goods sold $2,100,000 $1,440,000 Selling expenses 240,000 72,000 Administrative expenses 200,000 48,000 $2,540,000 $1,560,000 Management is considering the following independent alternatives for 2011. Increase unit selling price 25% with no change in costs, expenses, and sales volume. Change the compensation of salespersons from fixed annual salaries totaling $150,000 to total salaries of $60,000 plus a 3% commission on net sales. Purchase new automated equipment that will change the proportion between variable and fixed cost of goods sold to 60% variable and 40% fixed. Required: Compute the break-even point in dollars for 2010. Compute the break-even point in dollars under each of the alternative courses of action. Prepare income statement for each of the alternative courses of action
Question 4:
Gorham Manufacturing’s sales slumped badly in 2010. For the first time in its history, it operated at a loss. The company’s income statement showed the following results from selling 600,000 units of product: Net sales $2,390,000; total costs and expenses 2,540,000; and net loss $150,000. Costs and expenses consisted of the amounts shown below.
|
Total |
Variable |
Cost of goods sold |
$2,100,000 |
$1,440,000 |
Selling expenses |
240,000 |
72,000 |
Administrative expenses |
200,000 |
48,000 |
|
$2,540,000 |
$1,560,000 |
Management is considering the following independent alternatives for 2011.
- Increase unit selling price 25% with no change in costs, expenses, and sales volume.
- Change the compensation of salespersons from fixed annual salaries totaling $150,000 to total salaries of $60,000 plus a 3% commission on net sales.
- Purchase new automated equipment that will change the proportion between variable and fixed cost of goods sold to 60% variable and 40% fixed.
Required:
- Compute the break-even point in dollars for 2010.
- Compute the break-even point in dollars under each of the alternative courses of action.
- Prepare income statement for each of the alternative courses of action
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