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 from selling 505,500 units of product: sales $2,527,500, total costs and expenses $2,628,600, and net loss $101,100. Costs and expenses consisted of the amounts shown below.

		Total		Variable		Fixed
Cost of goods sold		$2,163,540		$1,607,490		$556,050
Selling expenses		252,750		93,012		159,738
Administrative expenses		212,310		68,748		143,562
		$2,628,600		$1,769,250		$859,350

Management is considering the following independent alternatives for 2018.

1.		Increase unit selling price 24% with no change in costs, expenses, and sales volume.
2.		Change the compensation of salespersons from fixed annual salaries totaling $151,650 to total salaries of $60,660 plus a 6% commission on sales.

(a) Compute the break-even point in dollars for 2017. (Round final answer to 0 decimal places, e.g. 1,225.)

Break-even point

$

(b) Compute the contribution margin under each of the alternative courses of action. (Round final answer to 0 decimal places, e.g. 1,225.)

Contribution margin for alternative 1		%
Contribution margin for alternative 2		%

Compute the break-even point in dollars under each of the alternative courses of action. (Round selling price per unit to 2 decimal places, e.g. 5.25 and other calculations to 0 decimal places, e.g. 20% and also final answer to 0 decimal places, e.g. 1,225.)

Break-even point for alternative 1		$
Break-even point for alternative 2		$

Which course of action do you recommend?                                                           Alternative 1Alternative 2

Answer 1

2864500 Answers A) Break Even Point in Dollars B) Contribution Margin for Alternative 1 Contribution Margin for Alternative 2 44% 24% C) Break Even Point for Alternative 1 1953068 Break Even Point for Alternative 2 3201500 Which course of Action Do you recommend Increasing Selling Price: Alternative 1

Data total Variable I 21635401607490 252750 93012 212310 68748 2628600 1769250 Cost of goods Sold Selling Expenses Administrative Expenses total Sales Revneue Less:Varaible Cost Contribution Margin Less: Fixed Cost Net Loss Fixed 556050 159738 143562 859350 2527500 1769250 758250 859350 -101100 Break Even Dollars = Fixed Cost / CM Ratio Ratio CM Ratio = Contribution Margin / Sales CM Ratio = 758250/2527500 Break Even Dollars =859350/30% 30.00% 2864500

IF Units Selling Price is increased by 24% Sales Revneue = 2527500*1.24 3134100 Less:Varaible Cost 1769250 Contribution Margin 13648501 CM Ratio = 1364850/3134100 44% Break Even Dollars =859350/44% 1953068 Compensations to Sales Persona from Fixed Annula Salaries to $60,660 Plus 4% Common on net Sales Total Variable Fixed Reveised cost Data Cost of goods Sold 2163540 16074901 556050| Selling Expenses 3134101244662 68748 Administrative Expenses 212310 6 8748 143562 total 26892601920900 768360 Sales Revneue 2527500 Less:Varaible Cost 1920900 Contribution Margin 606600 CM Ratio = 606600/2527500 24.00% Break Even Dollars =768360/0.24 3201500