Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN: 9781337115773
Author: Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher: Cengage Learning
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Transcribed Image Text:Question 1
Serve Better Company had a bad year in 2023. For the first time in its history, it operated at a
loss. The company's income statement showed the following results from selling 6,000 units
of product: sales $360,000; total costs and expenses $402,000; and net loss $42,000. Costs
and expenses consisted of the amounts shown below:
Cost of goods sold
Selling expenses
Administrative expenses
Total
$270,000
Variable
Fixed
$186,000
$84,000
$96,000
$25,000
$71,000
$36,000
$23,000
$13,000
$402,000
$234,000
$168,000
Management is considering the following independent alternatives for 2024.
1. Increase unit selling price 25% with no change in costs, expenses, and sales volume.
2. Change the compensation of salespersons from fixed annual salaries totaling
$60,000 to total salaries of $6,000 plus a 5% commission on net sales.
3. 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 dollars for 2023.
b. Compute the break-even point in dollars under each of the alternative courses of
action (Round all ratios to nearest full percent.) Which course of action do you
recommend?
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