Gorham Manufacturings sales slumped badly in 2022. For the first time in its history, it operated at
Question:
Gorham Manufacturing’s sales slumped badly in 2022. For the first time in its history, it operated at a loss. The company’s income statement showed the following results from selling 60,000 units of product: net sales $1.8 million; total costs and expenses $2,010,000; and operating loss $210,000. Costs and expenses consisted of the amounts shown below:
Management is considering the following independent alternatives for 2023:
1. Increase the unit selling price by 25% with no change in costs, expenses, or sales volume.
2. Change the compensation of salespersons from fixed annual salaries totalling $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. Calculate the break-even point in dollars for 2022.
b. Calculate the break-even point in dollars under each of the alternative courses of action. (Round all ratios to nearest full percent.)
Step by Step Answer:
Managerial Accounting Tools For Business Decision Making
ISBN: 9781119731825
6th Canadian Edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Ibrahim M. Aly, Donald E. Kieso