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 80,000 units of product: net sales $2,000,000; total costs and expenses $1,740,000; and net loss $135,000. Costs and expenses consisted of the following.

Management is considering the following independent alternatives for 2014.
1. Increase unit selling price 25% with no change in costs and expenses.
2. Change the compensation of salespersons from fixed annual salaries totaling $200,000 to total salaries of $40,000 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.

Instructions
(a) Compute the break-even point in dollars for 2014.
(b) Compute the break-even point in dollars under each of the alternative courses of action. Which course of action do yourecommend?

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Total Variable Fixed Cost of goods sold Selling expenses Administrative expenses $1,468,000 950,000 518,000 425,000 92,000 517,000 50,000 92,000 58,000 $2,135,000 $1,100,000 $1,035,000