Fredonia Inc. had a bad year in 2013. For the first time in its history, it operated at a loss….

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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 78,000 units of product: Net sales $1,536,600; total costs and expenses $1,740,200; and net loss $203,600. Costs and expenses consisted of the following.

   
Total
 
Variable
 
Fixed
Cost of goods sold   $1,202,800   $780,600   $422,200
Selling expenses   423,500   78,900   344,600
Administrative expenses   113,900   52,700   61,200
    $1,740,200   $912,200   $828,000

Management is considering the following independent alternatives for 2014.

1.   Increase unit selling price 29% with no change in costs and expenses.
2.   Change the compensation of salespersons from fixed annual salaries totaling $203,800 to total salaries of $43,200 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.

(a) Compute the break-even point in dollars for 2014. (Round contribution margin ratio to 4 decimal places e.g. 0.2512 and final answers to 0 decimal places, e.g. 2,510.)

Break-even point  
$
[removed]2038950

(b) Compute the break-even point in dollars under each of the alternative courses of action. (Round contribution margin ratio to 4 decimal places e.g. 0.2512 and final answers to 0 decimal places, e.g. 2,510.)

       
Break-even point
1.   Increase selling price  
$
[removed]2629935
2.   Change compensation  
$
[removed]
3.   Purchase machinery  
$
[removed]

Which course of action do you recommend?

 
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