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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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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