Dear het Income of $180,000. en point Courses P18-3A Tanek Corp.'s sales slumped badly in 2017. For the first time in its history, it oper ated 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. Cost of goods sold Selling expenses Administrative expenses Total $2,140,000 250,000 210,000 $2,600,000 Variable $1,590,000 92,000 Fixed $550,000 158,000 142,000 $850,000 68,000 $1,750,000 Management is considering the following independent alternatives for 2018. 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 2017. (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? A P18-4A Mary Willis is the advertising manager for Bargain Shoe Store. She is currently compe working on a major promotional campaign. Her ideas include the installation of a new light- margir ing system and increased display space that will add $24,000 in fixed costs to the $270,000 prepar currently spent. In addition, Mary is proposing that a 5% price decrease ($40 to $38) will produce a 20% increase in sales volume (20,000 to 24,000). Variable costs will remain at busine $24 per pair of shoes. Management is impressed with Mary's ideas but concerned about (LU 3,4 the effects that these changes will have on the break-even point and the margin of safety. Instructions (a) Compute the current break-even point in units, and compare it to the break-even point in units if Mary's ideas are used. (b) Compute the margin of safety ratio for current operations and after Mary's changes (b) Cu are introduced. (Round to nearest full percent.) ra (c) Prepare a CVP income statement for current operations and after Mary's changes are in troduced. (Show column for total amounts only.) Would you make the changes suggested? PARSA Vieiol Corporation has collected the following information after its first year of sales. Compt Sales were $1,600,000 on 100,000 units, selling expenses $250,000 (40% variable and 60% fixed a fixed), direct materials $490,000, direct labor $290,000, administrative expenses $270,000 sales fa (20% variable and 80% fixed), and manufacturing overhead $380,000 (70% variable and margir 30% fixed). Top management has asked you to do a CVP analysis so that it can make plans (LO 3.4 for the coming year. It has projected that unit sales will increase by 10% next year. Instructions
