Topic: The Break$-$even Point

You will discuss how cost behavior helps management plan operations and decide

between alternative courses of action. You will also see how important variable

costs and fixed costs are in determining the total costs under the high$-$low

method, calculating the break$-$even point, and completing the cost$-$volume$-$profit

analysis.

Scenario:

DessertsPlus Inc. was founded $2$ years ago and has had declining sales for the past

$2$ years:

The most recent income statement for $2022$ shows the following results selling

$104,535$ units which resulted in sales of $$2,404,305$ :

DessertsPlus

Income

Total

Variable

Fixed

Statement: $2022$

Cost of goods

sold

$$2,120,000$

$$1,591,655$

$$528,345$

Selling expenses $,245,920$

$90,990$

$154,930$

Administrative

expenses

$197,160$

$67,034$

$130,126$

$$2,563,080$

$$1,749,679$

$$813,401$

The owners are considering the following independent alternatives going forward

for the coming year.

Increasing the unit prices by either $15\%$ and $20\%$ without changing selling

and administrative expenses.

Moving their business to a less expensive lease location saving the

company $$120,000$ per year.

Change the compensation of sales personnel from fixed annual salaries

totaling $$150,000$ to total salaries of $$60,000$ plus $4\%$ commission on sales.

All other total costs total expenses and total sales remain unchanged.

Provide the following:

Compute and explain the break$-$even point in sales dollars for $2022.$

Compute and explain the break$-$even point in sales dollars under each of

the alternative courses of action.

What course of action do you recommend and why?

Return to Unit $5$ Discussion Instructions

Rubrics