R19-3B Olgivie Company had a bad year in 2013. For the first time in its history, it oper- ated at a loss. The company's income statement showed the following results from selling 60,000 units of product: sales $1,800,000; total costs and expenses $2,010,000; and net loss $210,000. Costs and expenses consisted of the amounts shown below. Total Variable Fixed Cost of goods sold Selling expenses Administrative expenses $ 930,000 125,000 115,000 $420,000 355,000 65,000 $840,000 $1,350,000 480,000 180,000 $2,010,000 $1,170,000 Management is considering the following independent alternatives for 2014. 1. Increase unit selling price 25% with no change in costs, expenses, and sales volume. 2. Change the compensation of salespersons from fixed annual salaries totaling $200,000 to total salaries of $20,000 plus a 5% commission on net sales. 3. Purchase new high-tech factory machinery that will change the proportion between variable and fixed cost of goods sold to 50:50. Instructions (a) Compute the break-even point in dollars for 2013. (b) Compute the break-even point in dollars under each of the alternative courses of action. (Round all ratios to nearest full percent.) Which course of action do you recommend?

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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P19-3B Olgivie Company had a bad year in 2013. For the first time in its history, it oper-
ated at a loss. The company's income statement showed the following results from selling
60,000 units of product: sales $1,800,000; total costs and expenses $2,010,000; and net loss
$210,000. Costs and expenses consisted of the amounts shown below.
Total
Variable
Fixed
Cost of goods sold
Selling expenses
Administrative expenses
$1,350,000
480,000
180,000
$2,010,000
$930,000
125,000
115,000
$420,000
355,000
65,000
$840,000
$1,170,000
Management is considering the following independent alternatives for 2014.
1. Increase unit selling price 25% with no change in costs, expenses, and sales volume.
2. Change the compensation of salespersons from fixed annual salaries totaling $200,000
to total salaries of $20,000 plus a 5% commission on net sales.
3. Purchase new high-tech factory machinery that will change the proportion between
variable and fixed cost of goods sold to 50:50.
Instructions
(a) Compute the break-even point in dollars for 2013.
(b) Compute the break-even point in dollars under each of the alternative courses of
action. (Round all ratios to nearest full percent.) Which course of action do you
recommend?
Transcribed Image Text:P19-3B Olgivie Company had a bad year in 2013. For the first time in its history, it oper- ated at a loss. The company's income statement showed the following results from selling 60,000 units of product: sales $1,800,000; total costs and expenses $2,010,000; and net loss $210,000. Costs and expenses consisted of the amounts shown below. Total Variable Fixed Cost of goods sold Selling expenses Administrative expenses $1,350,000 480,000 180,000 $2,010,000 $930,000 125,000 115,000 $420,000 355,000 65,000 $840,000 $1,170,000 Management is considering the following independent alternatives for 2014. 1. Increase unit selling price 25% with no change in costs, expenses, and sales volume. 2. Change the compensation of salespersons from fixed annual salaries totaling $200,000 to total salaries of $20,000 plus a 5% commission on net sales. 3. Purchase new high-tech factory machinery that will change the proportion between variable and fixed cost of goods sold to 50:50. Instructions (a) Compute the break-even point in dollars for 2013. (b) Compute the break-even point in dollars under each of the alternative courses of action. (Round all ratios to nearest full percent.) Which course of action do you recommend?
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