Covid2020 Furniture is operating at almost 100% capacity. The company expects sales to increase by 20% in 2020. To satisfy the demand for its products, the company is considering two alternatives: The first alternative would increase fixed costs by 15% but not affect variable costs. The second alternative would not affect fixed costs but increase variable costs to 60% of the selling price of the company’s product. Covid2020 Furniture’s income statement for 2019 is as follows: Sales RM1,800,000 Costs: Variable RM810,000 Fixed RM165,000 RM975,000 Income before taxes RM825,000 REQUIRED: (a) Determine the break-even point in sales dollars for 2020 under the first alternative. (b) Determine the break-even point in sales dollars for 2020 under the second alternative. (c) Determine projected income before taxes for 2020 under each of the alternatives. (d) Which alternative would you recommend? Why?
Covid2020 Furniture is operating at almost 100% capacity. The company expects sales to increase
by 20% in 2020. To satisfy the demand for its products, the company is considering two
alternatives:
The first alternative would increase fixed costs by 15% but not affect variable costs.
The second alternative would not affect fixed costs but increase variable costs to 60% of
the selling price of the company’s product.
Covid2020 Furniture’s income statement for 2019 is as follows:
Sales RM1,800,000
Costs:
Variable RM810,000
Fixed RM165,000 RM975,000
Income before taxes RM825,000
REQUIRED:
(a) Determine the break-even point in sales dollars for 2020 under the first alternative.
(b) Determine the break-even point in sales dollars for 2020 under the second alternative.
(c) Determine projected income before taxes for 2020 under each of the alternatives.
(d) Which alternative would you recommend? Why?
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