Retro Furniture Ltd suffered a severe drop in sales and profit performance for the year ended 30 June 2025. The income statement revealed that net sales were \($1\) 500 000 with a profit of \($310\) 000. Unit sales were 300 000, and total costs were \($1\) 190 000. A breakdown of costs and expenses is presented below.

In response to the bad result, management is considering a number of options for the year ending 30 June 2026 to try to improve performance. Independent policy options being considered are set out below.
1. Update factory machinery and production methods to adjust the mix of fixed and variable cost of sales (which includes manufacturing costs) to 40% fixed and 60% variable.
2. Increase the selling price by 15%, with no changes to costs and expenses but unit sales will decrease 10%.
3. Change the manner in which sales staff are remunerated. It is proposed to pay sales staff on the basis of a base salary of \($32\) 000 plus a 5% commission on net sales. The current policy is to pay fixed total salaries of \($105\) 000.
Required
(a) Calculate the break-even point in dollars of sales for the year ended 30 June 2025.
(b) Calculate the break-even point and profit for each of the options being considered by management.
(c) What action should be recommended to management? Explain why.

Transcribed Image Text:

Cost of sales (includes manufacturing costs) Selling expenses Administration expenses Total Fixed $350000 108 000 72 000 $530000 Variable $600000 36000 24 000 $660000 Total $ 950000 144 000 96000 $1190000