Griffey Manufacturing had a bad year in 2002. For the first time in its historj it operated at a loss. The company's income statement showed the following results Irom selling 60,000 units of product: Net sales $1,500,000; total costs .cml expenses $1,740,000;

and net loss \($240,000\). Costs and expenses consisted of the following.

Management is considering the following independent alternatives for 2003.
1. Increase unit selling price 20' 2. Change the compensation ol salespersons from fixed annual salaries totaling \($200,000\) to total salaries of \($40,000\) 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 2002.

(b) Compute the break-even point in dollars under each of the alternative courses of action. Which course of action do you recommend?

Transcribed Image Text:

Total Variable Fixed Cost of goods sold $1,200,000 $780,000 $420,000 Selling expenses 420,000 75,000 345,000 Administrative expenses 120,000 45,000 75,000 $1,740,000 $900,000 $840,000