Cruz Manufacturing Ltd’s sales slumped badly in 2019. For the first time in its history, it operated at a loss. The company’s income statement showed the following results from selling 600 000 units of product: net sales $2 400 000; total costs and expenses $2 610 000; and loss $210 000.

Costs and expenses consisted of the following.

Management is considering the following independent alternatives for 2020:
1. increase unit selling price 25% with no change in costs, expenses, and sales volume 2. change the compensation of salespersons from fixed annual salaries totalling $210 000 to total salaries of $70 000 plus a 3% commission on net sales 3. purchase new high‐tech machinery that will change the proportion of cost of sales to 55% of net sales variable and fixed cost of goods to $767 748 in total.
Required

(a) Calculate the break‐even point in dollars for 2020 for each of the three alternatives.

(b) Which course of action do you recommend?

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Total Cost of sales $2100 000 Selling expenses Administrative expenses 300 000 210000 $2610000 Variable $1440 000 72 000 48 000 $1560 000 Fixed $ 660 000 228 000 162 000 $1050 000