Gorham Manufacturing's sales slumped badly in 2010. For the first time in its history, it operated at a loss. The company's income statement showed the following results from selling 600,000 units of product: Net sales $2,390,000; total costs and expenses 2,540,000; and net loss $150,000. Costs and expenses consisted of the amounts shown below.

Total

Variable

Cost of goods sold

$2,100,000

$1,440,000

Selling expenses

240,000

72,000

Administrative expenses

200,000

48,000

$2,540,000

$1,560,000

Management is considering the following independent alternatives for 2011.

1. Increase unit selling price 25% 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 3% commission on net sales.

3. Purchase new automated equipment that will change the proportion between variable and fixed cost of goods sold to 60% variable and 40% fixed.