Copyright

Tanek Corp.'s sales slumped badly in 2017. For the first time in its history, it operated at a...

Question:

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 500,00 units of product: sales $2,500,000, total cost and expenses $2,600,000, and net loss $100,000. Costs and expenses consisted of the amounts shown below.

Total Variable Fixed
Cost of goods sold $2,140,000 $1,590,000 $550,000
Selling expenses 250,000 92,000 158,000
Administrative expenses 210,000 68,000 142,000
$2,600,000 $1,750,000 $850,000

Management is considering the following independent alternatives for 2018.

2. 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 $150,000 to total salaries of $60,000 plus a 5% commission on sales.

(a) Compute the break-even point in dollars for 2017. (Round final answer to 0 decimal places.)

(b) Compute the contribution margin under each of the alternative courses of action. (Round final answer to 0 decimal places.)

Total Variable Fixed
Cost of goods sold $2,140,000 $1,590,000 $550,000
Selling expenses 250,000 92,000 158,000
Administrative expenses 210,000 68,000 142,000
$2,600,000 $1,750,000 $850,000

(c) Compute the break-even point in dollars under each of the alternative courses of action. (Round selling price per unit to 2 decimal places and other calculations to 0 decimal places.)

Break-even point for alternative 1 $                  
Break-even point for alternative 2 $                     

Which course of action do you recommend?

Break even point:

Break even point is the point in the level of sales where the total expenses are equal to the revenues generated by the company, hence no profit or loss arises. It is given as the total fixed costs divided by contribution per unit.

Answer and Explanation: 1

Become a Study.com member to unlock this answer!

View this answer

Current Fixed Costs = 550000 + 158000 + 142000 = $850,000.00

Current Variable Cost per unit = (1590000 + 92000 + 68000) / 50000 = $35.00

Sales Price...

See full answer below.


Learn more about this topic:

Loading...
Break-Even Analysis: Definition & Example

from

Chapter 4 / Lesson 3
11K

A break-even analysis utilizes a price calculation formula to determine how much product a business must sell and at what price in order to make a profit. Learn how to apply this analysis through examples with fixed and variable costs, and discover the importance of a margin of safety.


Related to this Question

Explore our homework questions and answers library