Principle of Accounting
Cost Volume Profit Analysis
Galati manufacturing company had a bad year in 2005 for the first time in its history it operated at a loss. The company’s income statement showed the following results from selling 60,000 units of product: Net sales $1.500.00 total cost and expenses $1.740.000: and net loss $240,000 Cost and expenses consisted of the following
Total VariableFixed
Cost of goods sold $ 1.200.00 $780.000 $420.000
Selling expenses 420.000 65.000 355.000
Administration Expenses 120.00055.00065.000
$1.740.000$900.000$840.000
Management is considering the following independent alternatives for 2006
1. Increase units selling price 20% with no change in costs, expenses and sales volume.
2. Change the compensation of salespersons from fixed annual salaries totaling $200,000 total salaries of $30,000 plus a 6% 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
Instruction:
a) Compute the break-even point in dollars for 2005
b) Compute the break-even point in dollars under each of the alternative course of action. Which course of action do you recommend
Note: Do all three alternative individually attached is the formula you can use.
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