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.
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 $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.)
(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?