Question
Quality Furniture Company is operating at almost 100% of capacity. The company expects sales to increase by 25% in 2015. To satisfy the demand for
Quality Furniture Company is operating at almost 100% of capacity. The company expects sales to increase by 25% in 2015. To satisfy the demand for its product, the company is considering two alternatives: The first alternative would increase fixed costs by 15% but not affect variable costs. The second alternative would not affect fixed costs but increase variable costs to 60% of the selling price of the companys product.
This is Quality Furniture Companys condensed income statement for 2014:
| Sales Costs: |
| $3,600,000 |
|
|
|
|
| Variable | $1,620,000 |
|
| Fixed | 330,000 | 1,950,000 |
| Income before taxes |
| $1,650,000 |
Required:
a. Determine the break-even point in sales dollars for 2015 under each of the alternatives.
b. Determine projected income for 2015 under each of the alternatives.
c. Which alternative would you recommend? Why?
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