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Blossom Corp's sales slumped badly in 2020. For the first time in its history, it operated at a loss. The company's income statement showed the
Blossom Corp's sales slumped badly in 2020. For the first time in its history, it operated at a loss. The company's income statement showed the following results from selling 500,500 units of product: sales $2,502,500, total costs and expenses $2,615,550, and net loss $113,050. Costs and expenses consisted of the amounts shown below. Total Variable Fixed Cost of goods sold $2,155.090 $1.491,490 $663,600 Selling expenses 250,250 92,092 158,158 Administrative expenses 210.210 68,068 142,142 $2,615,550 $1,651.650 $963.900 Management is considering the following independent alternatives for 2021. 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 $150.150 to total salaries of $60,060 plus 36% commission on sales. Compute the contribution margin under each of the alternative courses of action. 27 % Contribution margin for alternative 1 Contribution margin for alternative 2 1.4 % Compute the break-even point in dollars under each of the alternative courses of action. $ 2.142,000 Break-even point for alternative 1 Break-even point for alternative 2 $ 873,810 Which course of action do you recommend? Alternative 1
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