Dousmann Corp.’s sales slumped badly in 2014. For the first time in its history, it operated at a loss. The company’s income statement showed the following results from selling 500,000 units of product: sales $2,500,000; total costs and expenses $2,600,000; and net loss $100,000. Costs and expenses consisted of the amounts shown below.

Total Variable Fixed Cost of goods sold $2,140,000 $1,540,000 $600,000 Selling expenses 250,000 92,000 158,000 Administrative expenses 210,000 68,000 142,000

$2,600,000 $1,700,000 $900,000 Management is considering the following independent alternatives for 2015.

1 Increase unit selling price 20% with no change in costs, expenses, and sales volume.

2 Change the compensation of salespersons from fixed annual salaries totaling $150,000 to total salaries of $60,000 plus a 5% commission on sales.

Instructions

(a) Compute the break-even point in dollars for 2014.

(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?

AppendixLO1