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
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
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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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