Fredonia Inc. Breakeven Analysis

Question

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.)

Break-even point