Ivanhoe Inc. had a bad year in 2021. For the first time in its history, it operated at a loss. The company's income statement showed the following results from selling 86,400 units of product: net sales $2,160,000; total costs and expenses $2,413,800; and net loss $253,800. Costs and expenses consisted of the following. Cost of goods sold Selling expenses Administrative expenses 1. 2. 3. Management is considering the following independent alternatives for 2022. Break-even point $ 1. Variable $1,134,000 99,360 62,640 $2,413,800 $1,296,000 Total $1,693,440 558,360 Increase selling price 162,000 2. Change compensation Increase unit selling price 25% with no change in costs and expenses. Change the compensation of salespersons from fixed annual salaries totaling $216,000 to total salaries of $43,200 plus a 5% commission on net sales. 3. Purchase machinery Purchase new high-tech factory machinery that will change the proportion between variable and fixed cost of goods sold to 50:50. (a) Compute the break-even point in sales dollars for 2021. (Round contribution margin ratio to 4 decimal places e.g. 0.2512 and final answer to 0 decimal places, e.g. 2,510.) (b) Compute the break-even point in sales dollars under each of the alternative courses of action for 2022. (Round contribution margin ratio to 3 decimal places e.g. 0.251 and final answers to 0 decimal places, e.g. 2,510.) 2,794,500 $ $ $ Fixed $559,440 459,000 99,360 Break-even point $1,117,800 2149615 2700000 1588592
Ivanhoe Inc. had a bad year in 2021. For the first time in its history, it operated at a loss. The company's income statement showed the following results from selling 86,400 units of product: net sales $2,160,000; total costs and expenses $2,413,800; and net loss $253,800. Costs and expenses consisted of the following. Cost of goods sold Selling expenses Administrative expenses 1. 2. 3. Management is considering the following independent alternatives for 2022. Break-even point $ 1. Variable $1,134,000 99,360 62,640 $2,413,800 $1,296,000 Total $1,693,440 558,360 Increase selling price 162,000 2. Change compensation Increase unit selling price 25% with no change in costs and expenses. Change the compensation of salespersons from fixed annual salaries totaling $216,000 to total salaries of $43,200 plus a 5% commission on net sales. 3. Purchase machinery Purchase new high-tech factory machinery that will change the proportion between variable and fixed cost of goods sold to 50:50. (a) Compute the break-even point in sales dollars for 2021. (Round contribution margin ratio to 4 decimal places e.g. 0.2512 and final answer to 0 decimal places, e.g. 2,510.) (b) Compute the break-even point in sales dollars under each of the alternative courses of action for 2022. (Round contribution margin ratio to 3 decimal places e.g. 0.251 and final answers to 0 decimal places, e.g. 2,510.) 2,794,500 $ $ $ Fixed $559,440 459,000 99,360 Break-even point $1,117,800 2149615 2700000 1588592
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Ivanhoe Inc. had a bad year in 2021. For the first time in its history, it operated at a loss. The company's income
statement showed the following results from selling 86,400 units of product: net sales $2,160,000; total costs
and expenses $2,413,800; and net loss $253,800. Costs and expenses consisted of the following.
Cost of goods sold
Selling expenses
Administrative expenses
1.
2.
3.
Break-even point $
1.
Total
$1,693,440
558,360
162,000
Management is considering the following independent alternatives for 2022.
Increase selling price
2. Change compensation
$2,413,800 $1,296,000
3. Purchase machinery
Variable
Increase unit selling price 25% with no change in costs and expenses.
Change the compensation of salespersons from fixed annual salaries totaling $216,000 to total salaries of
$43,200 plus a 5% commission on net sales.
$1,134,000
99,360
62,640
Purchase new high-tech factory machinery that will change the proportion between variable and fixed
cost of goods sold to 50:50.
(a) Compute the break-even point in sales dollars for 2021. (Round contribution margin ratio to 4 decimal
places e.g. 0.2512 and final answer to 0 decimal places, e.g. 2,510.)
2,794,500
$
(b) Compute the break-even point in sales dollars under each of the alternative courses of action for 2022.
(Round contribution margin ratio to 3 decimal places e.g. 0.251 and final answers to 0 decimal places, e.g.
2,510.)
$
$
Fixed
$559,440
459,000
Break-even point
99,360
2149615
$1,117,800
2700000
1588592
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