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Blossom Corp.’s sales slumped badly in 2020. For the first time in its history, it operated...

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

Solutions

Expert Solution

ekkarill92 answered 2 years ago
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