Fredonia Inc. Breakeven Analysis



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Fredonia Inc. had a bad year in 2013. For the first time in its history, it operated at a loss….

Fredonia Inc. had a bad year in 2013. For the first time in its history, it operated at a loss. The company’s income statement showed the following results from selling 78,000 units of product: Net sales $1,536,600; total costs and expenses $1,740,200; and net loss $203,600. Costs and expenses consisted of the following.

Total Variable Fixed
Cost of goods sold $1,202,800 $780,600 $422,200
Selling expenses 423,500 78,900 344,600
Administrative expenses 113,900 52,700 61,200
$1,740,200 $912,200 $828,000

Management is considering the following independent alternatives for 2014.

1. Increase unit selling price 29% with no change in costs and expenses.
2. Change the compensation of salespersons from fixed annual salaries totaling $203,800 to total salaries of $43,200 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 2014. (Round contribution margin ratio to 4 decimal places e.g. 0.2512 and final answers to 0 decimal places, e.g. 2,510.)

Break-even point $2038950

(b) Compute the break-even point in dollars under each of the alternative courses of action. (Round contribution margin ratio to 4 decimal places e.g. 0.2512 and final answers to 0 decimal places, e.g. 2,510.)

Break-even point
1. Increase selling price $2629935
2. Change compensation $
3. Purchase machinery $

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