Question

Sunland Corp.’s sales slumped badly in 2020. For the first time in its history, it operated at a loss. The company’s income statement showed the following results from selling 535,500 units of product: sales $2,677,500, total costs and expenses $2,777,460, and net loss $99,960. Costs and expenses consisted of the amounts shown below. Total Variable Fixed Cost of goods sold $2,284,800 $1,756,440 $528,360 Selling expenses 267,750 98,532 169,218 Administrative expenses 224,910 72,828 152,082 $2,777,460 $1,927,800 $849,660 Management is considering the following independent alternatives for 2021. 1. Increase unit selling price 20% with no change in costs, expenses, and sales volume. 2. Change the compensation of salespersons from fixed annual salaries totaling $160,650 to total salaries of $64,260 plus a 4% commission on sales. Compute the break-even point in dollars for 2020. Compute the contribution margin under each of the alternative courses of action.

Answer 1