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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 Total Variable Fixed $1,756,160 $1,176,000 $580.160 579,040 103,040 476,000 168,000 64,960 103,040 $2,503,200 $1,344,000 $1.159,200 Management is considering the following independent alternatives for 2022.

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 Total Variable Fixed $1,756,160 $1,176,000 $580.160 579,040 103,040 476,000 168,000 64,960 103,040 $2,503,200 $1,344,000 $1.159,200 Management is considering the following independent alternatives for 2022.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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 Management is considering the following independent alternatives for 2022. 1. 2. 3. 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. (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 0 decimal places, e.g. 2,510.) Break-even point $ 1. Purchase new high-tech factory machinery that will change the proportion between variable and fixed cost of goods sold to 50:50. 2. Total Variable Fixed $1,756,160 $1,176,000 $580,160 579,040 103,040 476,000 168,000 64,960 103,040 $2,503,200 $1,344,000 $1,159.200 (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 0 decimal places, e.g. 2,510.) Increase selling price Change compensation Purchase machinery $ $ Break-even point
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 Management is considering the following independent alternatives for 2022. 1. 2. 3. 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. (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 0 decimal places, e.g. 2,510.) Break-even point $ 1. Purchase new high-tech factory machinery that will change the proportion between variable and fixed cost of goods sold to 50:50. 2. Total Variable Fixed $1,756,160 $1,176,000 $580,160 579,040 103,040 476,000 168,000 64,960 103,040 $2,503,200 $1,344,000 $1,159.200 (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 0 decimal places, e.g. 2,510.) Increase selling price Change compensation Purchase machinery $ $ Break-even point
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