Solved by verified expert :Problem 6-1A
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 79,100 units of product: Net sales
$1,542,450; total costs and expenses $1,750,700; and net loss $208,250. Costs
and expenses consisted of the following.
Total
Variable
Fixed
Cost of goods sold
$1,197,800
$776,100
$421,700
Selling expenses
427,300
79,600
347,700
Administrative expenses
125,600
53,800
71,800
$1,750,700
$909,500
$841,200
Management is considering the following independent alternatives for 2014.
1.
Increase unit selling price 22% with no change in costs and
expenses.
2.
Change the compensation of salespersons from fixed annual
salaries totaling $200,000 to total salaries of $36,100 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
$
(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
$
2.
Change compensation
$
3.
Purchase machinery
$
Which course of action do you recommend?
Exercise
7-2 (Part Level Submission)
Gruden Company produces golf discs which it normally sells
to retailers for $6.90 each. The cost of manufacturing 20,700 golf discs
is:
Materials
$9,729
Labor
30,636
Variable overhead
22,149
Fixed overhead
40,572
Total
$103,086
Gruden also incurs 8% sales commission ($0.55) on each disc sold.
McGee Corporation offers Gruden $5 per disc for 4,700
discs. McGee would sell the discs under its own brand name in foreign
markets not yet served by Gruden. If Gruden accepts the offer, its fixed
overhead will increase from $40,572 to $46,294 due to the purchase of a
new imprinting machine. No sales commission will result from the special
order.
(a)
Prepare an incremental analysis for the special order.(Enter negative amounts using either a negative sign preceding
the number e.g. -45 or parentheses e.g. (45).)
Reject
Order
Accept
Order
Net Income
Increase
(Decrease)
Revenues
$
$
$
Materials
Labor
Variable overhead
Fixed overhead
Sales commissions
Net income
$
$
$
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