Question

Bramble 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 555,500 units of product: sales $2,777,500, total costs and expenses $2,888,600, and net loss $111,100. Costs and expenses consisted of the amounts shown below. Total Variable Fixed Cost of goods sold $2,377,540 $1,766,490 $611,050 Selling expenses 277,750 102,212 175,538 Administrative expenses 233,310 75,548 157,762 $2,888,600 $1,944,250 $944,350 Management is considering the following independent alternatives for 2018.

1. Increase unit selling price 25% with no change in costs, expenses, and sales volume. 2. Change the compensation of salespersons from fixed annual salaries totaling $166,650 to total salaries of $66,660 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 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?

Answer 1

Answer with working notes is given below