Question

Sandhill 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 585,500 units of product: sales $2,927,500, total costs and expenses $3,035,440, and net loss $107,940. Costs and expenses consisted of the amounts shown below. Total Variable Fixed Cost of goods sold $2,496,780 $1,920,440 $576,340 Selling expenses 292,750 107,732 185,018 Administrative expenses 245,910 79,628 166,282 $3,035,440 $2,107,800 $927,640 Management is considering the following independent alternatives for 2021. 1. Increase unit selling price 20% with no change in costs, expenses, and sales volume. 2. Change the compensation of salespersons from fixed annual salaries totaling $175,650 to total salaries of $70,260 plus a 5% commission on sales.

Your answer is incorrect. Try again. Compute the break-even point in dollars for 2020. Break-even point $

Your answer is incorrect. Try again. 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 1/Alternative 2

Answer 1

required 1;

first let us know the contribution margin;

=> (sales - variable costs) / sales

=>(2,927,500- 2,107,800) / 2,927,500

=>0.28.

break even point = fixed costs / contribution margin

=>927,640 / 0.28

=>3,313,000.

required 2;

contribution margin for alternative 1	0.40
contribution margin for alternative 2	0.23

working

alternative 1

amount of sales = 2927500+20%

=>$3,513,000.

contribution margin = (3,513,000 - 2,107,800) / 3,513,000

=>0.40.

alternative 2;

variable costs =2107800 + (5%*2927500)..............(since variable portion of commission will be new addition to variable cost)

=>2,254,175.

contribution margin = (2,927,500-2,254,175) / 2,927,500

=>0.23.

required 3;

break even point alternative 1	2,319,100
break even point alternative 2	3,575,000

working

alternative 1 break even point = fixed costs / contribution margin

=>927,640 / 0.40

=>2,319,100.

alternative 2;

fixed costs = 927,640 -175,650+70,260 =>822,250.

break even point = 822,250/0.23

=>3,575,000