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Long Weekend Ltd suffered a severe drop in sales and profit performance for the year ended 30 June 2013. The income statement revealed that net

Long Weekend Ltd suffered a severe drop in sales and profit performance for the year ended 30 June 2013. The income statement revealed that net sales were $1500000 with a profit of $310000. Unit sales were 300000, and the total costs were $1190000. A breakdown of costs and expenses:

*Cost of Sales (includes manufacturing costs)

Fixed - 250000

Variable - 600000

Total - 950000

*Selling Expenses

Fixed - 108000

Variable - 36000

Total - 144000

*Admin

Fixed - 72000

Variable - 24000

Total - 96000

In response to the bad result, management is considering a number of options for the year ending 30 June 2014 to try to improve performance. Independent policy options being considered are set out below:

  1. Update factory machinery and production methods to adjust the mix of fixed and variable cost of sales (which includes manufacturing costs) to 40% fixed and 60% variable.
  2. Increase the selling price by 15%, with no changes to costs and expenses but unit sales will decrease 10%.
  3. Change the manner in which sales staff are remunerated. It is proposed to pay sales staff on the basis of base salary of $32000 plus a 5% commission on net sales. The current policy is the pay fixed total salaries of $105000.

Required

A. Calculate break-even point in dollars of sales for the year ended 30 June 2013.

B. Calculate the break-even point and profit for each of the options being considered by management.

C. What action should be recommended to management? Explain why.

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