Tanek 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 500,000 units of product: sales $2,500,000, total costs and expenses $2,600,000, and net loss $100,000. Costs and expenses consisted of the amounts shown below.
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 $150,000 to total salaries of $60,000 plus a 5% commission on sales.
Instructions
a. Compute the break-even point in dollars for 2020.
b. Compute the break-even point in dollars under each of the alternative courses of action. (Round all ratios to nearest full percent.) Which course of action do you recommend?
