In: Accounting
Blossom Corp.’s sales slumped badly in 2020. 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 $2,611,625, and net loss $84,125. Costs and expenses consisted of the amounts shown below.
Total |
Variable |
Fixed |
||||
Cost of goods sold | $2,146,565 | $1,733,865 | $412,700 | |||
Selling expenses | 252,750 | 93,012 | 159,738 | |||
Administrative expenses | 212,310 | 68,748 | 143,562 | |||
$2,611,625 | $1,895,625 | $716,000 |
Management is considering the following independent alternatives
for 2021.
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 $151,650 to total salaries of $60,660 plus a 5% commission on sales. |
Compute the break-even point in dollars for 2020.
Break-even point |
$ |
Compute the contribution margin under each of the alternative courses of action.
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.
Break-even point for alternative 1 |
$ |
|
Break-even point for alternative 2 |
$ |
Which course of action do you recommend?
Alternative 1Alternative
2