Keppel Manufacturing had a bad year in 2012, operating at a loss for the first time in its history. The company’s income statement showed the following results from selling 200,000 units of product: net sales Br.2,000,000; total costs and expenses Br.2,120,000; and net loss Br.120,000. Costs and expenses consisted of the following. Total Variable Fixed Cost of goods sold Br.1,295,000 Br. 975,000 Br.320,000 Selling expenses 575,000 325,000 250,000 Administrative expenses 250,000 100,000 150,000 Br.2,120,000 Br.1,400,000 Br 720,000 Management is considering the following independent alternatives for 2013. 1. Increase unit selling price 30% with no change in costs and expenses. 2. Change the compensation of salespersons from fixed annual salaries totaling Br.170,000 to total salaries of Br.50,000 plus a 6% 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 40:60. Instructions (a) Compute the break-even point in dollars for 2012. (b) Compute the break-even point in dollars under each of the alternative courses of action. Which course of action do you recommend? (Round to the nearest dollar.)
Question 3:
Keppel Manufacturing had a bad year in 2012, operating at a loss for the first time in its history. The company’s income statement showed the following results from selling 200,000 units of product: net sales Br.2,000,000; total costs and expenses Br.2,120,000; and net loss Br.120,000. Costs and expenses consisted of the following.
Total Variable Fixed
Cost of goods sold Br.1,295,000 Br. 975,000 Br.320,000
Selling expenses 575,000 325,000 250,000
Administrative expenses 250,000 100,000 150,000
Br.2,120,000 Br.1,400,000 Br 720,000
Management is considering the following independent alternatives for 2013.
1. Increase unit selling price 30% with no change in costs and expenses.
2. Change the compensation of salespersons from fixed annual salaries totaling Br.170,000 to total salaries of Br.50,000 plus a 6% 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 40:60.
Instructions
(a) Compute the break-even point in dollars for 2012.
(b) Compute the break-even point in dollars under each of the alternative courses of action. Which course of action do you recommend? (Round to the nearest dollar.)
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