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Werth & Garza Manufacturing's sales slumped badly in 2013 due to so many people purchasing gifts online. The company's income statement showed the following results from selling 500,000 units of product: net sales $2,125,000; total costs and expenses $2,500,000; and net loss $375,000. Costs and expenses consisted of the following: Total Variable Cost of goods sold $2,000,000 $1,300,000 $700,000 Fixed Selling expenses 200,000 50,000 150,000 Administrative expenses 300,000 150,000 150,000 $2,500,000 $1,500,000 $1,000,000 Management is considering the following alternative for 2013: Purchase new automated equipment that will change the proportion between variable and fixed expenses sold to 45% variable and 55% fixed. Instructions (a) Compute the break-even point in dollars for 2013. (b) Compute the break-even point in dollars under the alternative course of action.

Werth & Garza Manufacturing's sales slumped badly in 2013 due to so many people purchasing gifts online. The company's income statement showed the following results from selling 500,000 units of product: net sales $2,125,000; total costs and expenses $2,500,000; and net loss $375,000. Costs and expenses consisted of the following: Total Variable Cost of goods sold $2,000,000 $1,300,000 $700,000 Fixed Selling expenses 200,000 50,000 150,000 Administrative expenses 300,000 150,000 150,000 $2,500,000 $1,500,000 $1,000,000 Management is considering the following alternative for 2013: Purchase new automated equipment that will change the proportion between variable and fixed expenses sold to 45% variable and 55% fixed. Instructions (a) Compute the break-even point in dollars for 2013. (b) Compute the break-even point in dollars under the alternative course of action.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Werth & Garza Manufacturing's sales slumped badly in 2013 due to so many people purchasing gifts online. The company's income statement showed the following results from selling 500,000 units of product: net sales $2,125,000; total costs and expenses $2,500,000; and net loss $375,000. Costs and expenses consisted of the following: Total Variable Fixed Cost of goods sold $2,000,000 $1,300,000 $700,000 Selling expenses 200,000 50,000 150,000 Administrative expenses 300,000 150,000 150,000 $2,500,000 $1,500,000 $1,000,000 Management is considering the following alternative for 2013: Purchase new automated equipment that will change the proportion between variable and fixed expenses sold to 45% variable and 55% fixed. Instructions (a) Compute the break-even point in dollars for 2013. (b) Compute the break-even point in dollars under the alternative course of action.
Transcribed Image Text:Werth & Garza Manufacturing's sales slumped badly in 2013 due to so many people purchasing gifts online. The company's income statement showed the following results from selling 500,000 units of product: net sales $2,125,000; total costs and expenses $2,500,000; and net loss $375,000. Costs and expenses consisted of the following: Total Variable Fixed Cost of goods sold $2,000,000 $1,300,000 $700,000 Selling expenses 200,000 50,000 150,000 Administrative expenses 300,000 150,000 150,000 $2,500,000 $1,500,000 $1,000,000 Management is considering the following alternative for 2013: Purchase new automated equipment that will change the proportion between variable and fixed expenses sold to 45% variable and 55% fixed. Instructions (a) Compute the break-even point in dollars for 2013. (b) Compute the break-even point in dollars under the alternative course of action.
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