Tanek Corp.’s sales slumped badly in 2017. For the first time inits history, it operated at a loss. The company’s income statementshowed the following results from selling 575,500 units of product:sales $2,877,500, total costs and expenses $2,992,600, and net loss$115,100. Costs and expenses consisted of the amounts shownbelow.
| | Total | | Variable | | Fixed |
| Cost of goods sold | | $2,463,140 | | $1,830,090 | | $633,050 |
| Selling expenses | | 287,750 | | 105,892 | | 181,858 |
| Administrative expenses | | 241,710 | | 78,268 | | 163,442 |
| | $2,992,600 | | $2,014,250 | | $978,350 |
Management is considering the following independent alternativesfor 2018.
| 1. | | Increase unit selling price 20% with no change in costs,expenses, and sales volume. |
| 2. | | Change the compensation of salespersons from fixed annualsalaries totaling $172,650 to total salaries of $69,060 plus a 5%commission on sales. |
(a) Compute the break-even point in dollars for2017. (Round final answer to 0 decimal places, e.g.1,225.)
(b) Compute the contribution margin under each ofthe alternative courses of action. (Round final answerto 0 decimal places, e.g. 1,225.)
| Contribution margin for alternative 1 | | % |
| Contribution margin for alternative 2 | | % |
Compute the break-even point in dollars under each of thealternative courses of action. (Round selling price perunit to 2 decimal places, e.g. 5.25 and other calculations to 0decimal places, e.g. 20% and also final answer to 0 decimal places,e.g. 1,225.)
| Break-even point for alternative 1 | | $ |
| Break-even point for alternative 2 | | $ |
Which course of action do you recommend?
