Gorham Manufacturing's sales slumped badly in 2012. For the first time in its history, it operated at a loss. The company's income statement showed the following results from selling 64,000 units of product: net sales $1.6 million; total costs and expenses $1,880,000; and net loss $280,000. Costs and expenses consisted of the amounts shown below:

Management is considering the following independent alternatives for 2013:
1. Increase the unit selling price by 40% with no change in costs, expenses, and sales volume.
2. Change the compensation of salespersons from fixed annual salaries totaling $200,000 to total salaries of $30,000 plus a 5% commission on net sales.
Instructions
(a) Calculate the break-even point in dollars for 2012.
(b) Calculate the break-even point in dollars under each of the alternative courses of action. (Round all ratios to nearest full percent.)
(c) State which course of action you recommend. Give reasons for your recommendation?

Transcribed Image Text:

Variable Fixed $420,000 355,000 Total Cost of goods sold Selling expenses Administrative expenses $1,350,000 420,000 110,000 $1,880,000 $ 930,000 65,000 45,000 $1,040,000 65,000 HA0,00