Fredonia Inc. Breakeven Analysis

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Description

Fredonia Inc. had a bad year in 2013. For the
first time in its history, it operated at a loss. The company’s income
statement showed the following results from selling 76,000 units of
product: Net sales $1,459,200; total costs and expenses $1,741,500; and net
loss $282,300. Costs and expenses consisted of the following.

Total
Variable Fixed

COGS 1201800 779500
422300

Selling Expenses 414800 73100 341700

Administration Expenses 124900 53800 71100

Totals 1741500 906400 835100

Management is considering the following
independent alternatives for 2014.

1. Increase
unit selling price 29% with no change in costs and expenses.

2. Change
the compensation of salespersons from fixed annual salaries totaling $195,000
to total salaries of $37,300 plus a 5% commission on net sales.

3. Purchase
new high-tech factory machinery that will change the proportion between
variable and fixed cost of goods sold to 50:50.

Compute the break-even point in dollars for 2014.
(Round contribution margin ratio to 4 decimal
places e.g. 0.2512 and final answers to 0 decimal places, e.g. 2,510.)

Break-even point

$

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2204593

b) Compute the break-even
point in dollars under each of the alternative courses of action. (Round contribution margin ratio to 4 decimal places e.g.
0.2512 and final answers to 0 decimal places, e.g. 2,510.)

Break-even
point

1.

Increase selling price

$

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2.

Change compensation

$

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3.

Purchase machinery

$

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Fredonia Inc. Breakeven Analysis

$17.00

Description

Fredonia Inc. had a bad year in 2013. For the first time in its history, it operated at a loss….

Fredonia Inc. had a bad year in 2013. For the first time in its history, it operated at a loss. The company’s income statement showed the following results from selling 78,000 units of product: Net sales $1,536,600; total costs and expenses $1,740,200; and net loss $203,600. Costs and expenses consisted of the following.

Total Variable Fixed
Cost of goods sold $1,202,800 $780,600 $422,200
Selling expenses 423,500 78,900 344,600
Administrative expenses 113,900 52,700 61,200
$1,740,200 $912,200 $828,000

Management is considering the following independent alternatives for 2014.

1. Increase unit selling price 29% with no change in costs and expenses.
2. Change the compensation of salespersons from fixed annual salaries totaling $203,800 to total salaries of $43,200 plus a 5% commission on net sales.
3. Purchase new high-tech factory machinery that will change the proportion between variable and fixed cost of goods sold to 50:50.

(a) Compute the break-even point in dollars for 2014. (Round contribution margin ratio to 4 decimal places e.g. 0.2512 and final answers to 0 decimal places, e.g. 2,510.)

Break-even point $.homeworkmarket.com/edugen/art2/common/pixel.gif” alt=””>2038950

(b) Compute the break-even point in dollars under each of the alternative courses of action. (Round contribution margin ratio to 4 decimal places e.g. 0.2512 and final answers to 0 decimal places, e.g. 2,510.)

Break-even point
1. Increase selling price $.homeworkmarket.com/edugen/art2/common/pixel.gif” alt=””>2629935
2. Change compensation $.homeworkmarket.com/edugen/art2/common/pixel.gif” alt=””>
3. Purchase machinery $.homeworkmarket.com/edugen/art2/common/pixel.gif” alt=””>

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