Fredonia Inc. Breakeven Analysis

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 76,000 units of product: Net sales $1,459,200; total costs and expenses $1,741,500; and net loss $282,300. Costs and expenses consisted of the following.

                                    Total     Variable     Fixed

COGS                        1201800    779500     422300

Selling Expenses          414800      73100        341700

Administration Expenses 124900    53800        71100

Totals                        1741500    906400      835100

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 $195,000 to total salaries of $37,300 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.

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.)

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.)