a. Yard Tools manufactures lawnmowers, weed-trimmers, and chainsaws. Its sales mix and contribution margin per unit are as follows.

Yard Tools has fixed costs of $6,146,640.
Compute the number of units of each product that Yard Tools must sell in order to break even under this product mix.

b. 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 79,300 units of product: Net sales $1,570,140; total costs and expenses $1,730,100; and net loss $159,960. Costs and expenses consisted of the following.
Management is considering the following independent alternatives for 2014.

1. Increase unit selling price 28% with no change in costs and expenses.
2. Change the compensation of salespersons from fixed annual salaries totaling $197,300 to total salaries of $41,400 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.
(i) Compute the break-even point in dollars for 2014.
(ii) Compute the break-even point in dollars under each of the alternative courses of action.

Which course of action do yourecommend?

  • CreatedJuly 28, 2013
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