Werth & Garza Manufacturing's sales slumped badly in 2013 due to so many people purchasing gifts online. The company's income statement showed the following results from selling 500,000 units of product: net sales $2,125,000; total costs and expenses $2,500,000; and net loss $375,000. Costs and expenses consisted of the following:

Total Variable Fixed

Cost of goods sold $2,000,000 $1,300,000 $700,000

Selling expenses 200,000 50,000 150,000

Administrative expenses 300,000 150,000 150,000

$2,500,000 $1,500,000 $1,000,000

Management is considering the following alternative for 2013:

Purchase new automated equipment that will change the proportion between variable and fixed expenses sold to 45% variable and 55% fixed.

Instructions

(a) Compute the break-even point in dollars for 2013.

(b) Compute the break-even point in dollars under the alternative course of action.