Ivanhoe Inc. had a bad year in 2021. For the first time in its history, it operated at a loss. The company's income statement showed the following results from selling 68,800 units of product: net sales $1,720,000; total costs and expenses $1,922,100; and net loss $202,100. Costs and expenses consisted of the following. Total Variable Fixed Cost of goods sold $1,348,480 $903,000 $445,480 Selling expenses 444,620 79,120 365,500 Administrative expenses 129,000 49,880 79,120 $1,922,100 $1,032,000 $890,100 Management is considering the following independent alternatives for 2022. 1. Increase unit selling price 25% with no change in costs and expenses. 2. 3. Change the compensation of salespersons from fixed annual salaries totaling $172,000 to total salaries of $34,400 plus a 5% commission on net sales. Purchase new high-tech factory machinery that will change the proportion between variable and fixed cost of goods sold to 50:50. (a) Compute the break-even point in sales dollars for 2021. (Round contribution margin ratio to 4 decimal places e.g. 0.2512 and final answer to O decimal places, e.g. 2,510.) Break-even point $ (b) Compute the break-even point in sales dollars under each of the alternative courses of action for 2022. (Round contribution margin ratio to 3 decimal places e.g. 0.251 and final answers to O decimal places, e.g. 2,510.) Break-even point 1. Increase selling price $ 2. Change compensation $ 3. Purchase machinery Which course of action do you recommend?
Ivanhoe Inc. had a bad year in 2021. For the first time in its history, it operated at a loss. The company's income statement showed the following results from selling 68,800 units of product: net sales $1,720,000; total costs and expenses $1,922,100; and net loss $202,100. Costs and expenses consisted of the following. Total Variable Fixed Cost of goods sold $1,348,480 $903,000 $445,480 Selling expenses 444,620 79,120 365,500 Administrative expenses 129,000 49,880 79,120 $1,922,100 $1,032,000 $890,100 Management is considering the following independent alternatives for 2022. 1. Increase unit selling price 25% with no change in costs and expenses. 2. 3. Change the compensation of salespersons from fixed annual salaries totaling $172,000 to total salaries of $34,400 plus a 5% commission on net sales. Purchase new high-tech factory machinery that will change the proportion between variable and fixed cost of goods sold to 50:50. (a) Compute the break-even point in sales dollars for 2021. (Round contribution margin ratio to 4 decimal places e.g. 0.2512 and final answer to O decimal places, e.g. 2,510.) Break-even point $ (b) Compute the break-even point in sales dollars under each of the alternative courses of action for 2022. (Round contribution margin ratio to 3 decimal places e.g. 0.251 and final answers to O decimal places, e.g. 2,510.) Break-even point 1. Increase selling price $ 2. Change compensation $ 3. Purchase machinery Which course of action do you recommend?
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text:Ivanhoe Inc. had a bad year in 2021. For the first time in its history, it operated at a loss. The company's income statement showed the
following results from selling 68,800 units of product: net sales $1,720,000; total costs and expenses $1,922,100; and net loss
$202,100. Costs and expenses consisted of the following.
Total
Variable
Fixed
Cost of goods sold
$1,348,480
$903,000 $445,480
Selling expenses
444,620
79,120
365,500
Administrative expenses
129,000
49,880
79,120
$1,922,100
$1,032,000
$890,100
Management is considering the following independent alternatives for 2022.
1. Increase unit selling price 25% with no change in costs and expenses.
2.
3.
Change the compensation of salespersons from fixed annual salaries totaling $172,000 to total salaries of $34,400 plus a 5%
commission on net sales.
Purchase new high-tech factory machinery that will change the proportion between variable and fixed cost of goods sold to
50:50.
(a) Compute the break-even point in sales dollars for 2021. (Round contribution margin ratio to 4 decimal places e.g. 0.2512 and final
answer to O decimal places, e.g. 2,510.)
Break-even point
$
(b) Compute the break-even point in sales dollars under each of the alternative courses of action for 2022. (Round contribution margin
ratio to 3 decimal places e.g. 0.251 and final answers to O decimal places, e.g. 2,510.)
Break-even point
1.
Increase selling price
$
2.
Change compensation
$
3.
Purchase machinery
Which course of action do you recommend?
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