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Pharoah 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 89,600 units of product: net sales $2,240,000; total costs and expenses $2,503,200; and net loss $263,200. Costs and expenses consisted of the following. Cost of goods sold Selling expenses Administrative expenses 1. 2. Total $1,756,160 3. 579,040 Variable $1,176,000 $580,160 476,000 103,040 $2,503,200 $1,344,000 $1,159,200 168,000. Management is considering the following independent alternatives for 2022, Fixed 103,040 64,960 Increase unit selling price 25% with no change in costs and expenses. Change the compensation of salespersons from fixed annual salaries totaling $224,000 to total salaries of $44,800 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

Pharoah 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 89,600 units of product: net sales $2,240,000; total costs and expenses $2,503,200; and net loss $263,200. Costs and expenses consisted of the following. Cost of goods sold Selling expenses Administrative expenses 1. 2. Total $1,756,160 3. 579,040 Variable $1,176,000 $580,160 476,000 103,040 $2,503,200 $1,344,000 $1,159,200 168,000. Management is considering the following independent alternatives for 2022, Fixed 103,040 64,960 Increase unit selling price 25% with no change in costs and expenses. Change the compensation of salespersons from fixed annual salaries totaling $224,000 to total salaries of $44,800 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

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Pharoah 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 89,600 units of product: net sales $2,240,000; total costs and expenses $2,503,200; and net loss. $263,200. Costs and expenses consisted of the following. Cost of goods sold Selling expenses Administrative expenses Variable $1,756,160 $1,176,000 2. Total 3. 103,040 64,960 579,040 168,000 $2,503,200 $1,344,000 Management is considering the following independent alternatives for 2022. Fixed $580,160 476,000 103,040 $1,159,200 1. Increase unit selling price 25% with no change in costs and expenses. Change the compensation of salespersons from fixed annual salaries totaling $224,000 to total salaries of $44,800 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
Transcribed Image Text:Pharoah 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 89,600 units of product: net sales $2,240,000; total costs and expenses $2,503,200; and net loss. $263,200. Costs and expenses consisted of the following. Cost of goods sold Selling expenses Administrative expenses Variable $1,756,160 $1,176,000 2. Total 3. 103,040 64,960 579,040 168,000 $2,503,200 $1,344,000 Management is considering the following independent alternatives for 2022. Fixed $580,160 476,000 103,040 $1,159,200 1. Increase unit selling price 25% with no change in costs and expenses. Change the compensation of salespersons from fixed annual salaries totaling $224,000 to total salaries of $44,800 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 a. 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 contributa ratio to 3 decimal places e.g. 0.251 and final answers to 0 decimal places, e.g. 2,510.). 1. 2. 3. Increase selling price Change compensation Purchase machinery $ $ Break-even point Which course of action do you recommend?
Transcribed Image Text:(a) Compute the break-even point in sales dollars for 2021. (Round contribution margin ratio to 4 decimal places e.g. 0.2512 a. 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 contributa ratio to 3 decimal places e.g. 0.251 and final answers to 0 decimal places, e.g. 2,510.). 1. 2. 3. Increase selling price Change compensation Purchase machinery $ $ Break-even point Which course of action do you recommend?
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