Principle of Accounting

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
\$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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