Question

Johnson's Corp 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 540,500 units of product: sales $2,702,500, total costs and expenses $2,810,600, and net loss $108,100. Costs and expenses consisted of the amounts shown below. Total Variable Fixed Cost of goods sold $2,313,340 $1,718,790 $594,550 Selling expenses 270,250 99,452 170,798 Administrative expenses 227,010 73,508 153,502 $2,810,600 $1,891,750 $918,850 Management is considering the following independent alternatives for 2018. 1. Increase unit selling price 23% with no change in costs, expenses, and sales volume. 2. Change the compensation of salespersons from fixed annual salaries totaling $162,150 to total salaries of $64,860 plus a 5% commission on sales.

1. Compute the break-even point in dollars for 2017. Break-even point $=

2.  Compute the contribution margin under each of the alternative courses of action. (Round final answer to 0 decimal places, e.g. 1,225.)

Contribution margin for alternative 1

%=

Contribution margin for alternative 2 %=

3. 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 $=

Answer 1

1. Breakeven point in dollars for 2017

2.

Alternative 1:

Unit Selling price = Total Sales/Sales units = $5

23% increase in price = 5 x 123% = $6.15

Alternative 2 :

3.

Breakeven point in dollars for Alternative 1 = Fixed Cost/Contribution % = 918,850/43% = $2,132,425

Breakeven point in dollars for Alternative 2:

Fixed Costs other than fixed selling costs = $748,052

Fixed Selling Costs = $170,798 - 162,150 + 64860 = $73,508

Total Fixed Costs = $821,560

Break even point in dollars = 821,560/25% = $3,286,240