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 590,500 units of product: sales $2,952,500, total costs and expenses $3,050,875, and net loss $98,375. Costs and expenses consisted of the amounts shown below. Total Variable Fixed Cost of goods sold $2,507,615 $2,025,415 $482,200 Selling expenses 295,250 108,652 186,598 Administrative expenses 248,010 80,308 167,702 $3,050,875 $2,214,375 $836,500 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 $177,150 to total salaries of $70,860 plus a 5% 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 answers 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 answers 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?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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 590,500 units of product: sales $2,952,500, total costs and expenses $3,050,875, and net loss $98,375. Costs and expenses consisted of the amounts shown below.

	Total	Variable	Fixed
Cost of goods sold	$2,507,615	$2,025,415	$482,200
Selling expenses	295,250	108,652	186,598
Administrative expenses	248,010	80,308	167,702
	$3,050,875	$2,214,375	$836,500

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 $177,150 to total salaries of $70,860 plus a 5% 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 answers 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 answers 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?

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