Tanek Corp.’s sales slumped badly in 2017. For the first time in its history, it operated at a loss. The company’s income statement showed the following results from selling 500,000 units of product: sales $2,500,000, total costs and expenses $2,600,000, and net loss $100,000. Costs and expenses consisted of the amounts shown below.

Management is considering the following independent alternatives for 2018.

1. Increase unit selling price 20% with no change in costs, expenses, and sales volume.

2. Change the compensation of salespersons from fixed annual salaries totaling $150,000 to total salaries of $60,000 plus a 5% commission on sales.

Instructions

(a) Compute the break-even point in dollars for 2017.

(b) Compute the break-even point in dollars under each of the alternative courses of action. (Round all ratios to nearest full percent.) Which course of action do you recommend?

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Total Variable Fixed Cost of goods sold Selling expenses Administrative expenses $2,140,000 $1,590,000 $550,000 158,000 142,000 $1,750,000 $850,000 250,000 210,000 $2,600,000 92,000 68,000