Question
Tanek Corp.'s sales slumped badly in 2017.For the first time in its history, it operated at a loss.The company's income statement showed the following results
Tanek Corp.'s sales slumped badly in 2017.For the first time in its history, it operated 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 below.
TotalVariableFixed
Costs of goods sold $2,140,000 $1,590,000 $550,000
Selling expenses 250,000 92,000 158,000
Administrative expenses 210,000 68,000 142,000
$2,600,000 $1,750,000 $850,000
Management is considering the following 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.
(a) What would the break-even point in dollars be for 2017?
(b) What would the break-even point in dollars be under each of the alternative courses of action?
(Round all ratios to the nearest full percent.) Which course of action do you recommend?
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