Tanek corp.’s sales slumped badly in 2017. 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.
cost of good sold $2,140,000 $1,590, $550,000selling expenses 250,000 92,000 158,000administrative expenses 210,000 68,000 142,000totals $2,600,000 $1,750,000 $850,000management is considering the following independent alternatives for 2018.1) increase unit selling price 20% with no change in cost, 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 salesa) compute the break-even point in dollars for 2017: break-even point $ ) compute the contribution margin under each of the alternative courses of action: contribution margin for alternative 1 %contribution margin for alternative 2 %compute hte break-even point in dollars under each of the alternative courses of action: break-even point for alternative 1 $ -even point for alternative 2 $

a) Break-even point in dollar for 2017

Contribution margin ratio = Contribution Margin/Sales

C.M Ratio = (Sales - Variable Cost)/Sales

C.M Ratio = $(2,500,000-1,750,000)/2,500,000

C.M Ratio = 0.30 or 30%

Break-even point in dollars = Fixed expense/C.M Ratio

B-E point ($) = $850,000/0.30

= $2,833,333.33

Alternative 1

Sales Price per unit after increasing 20%,

Sales Price = ($5*0.2) + $5 = $6

Total Sales ($) = (Sales Price x Sales Units)

Total Sales ($) = ($6*500,000) =$3,000,000

Contribution margin ratio = Contribution Margin/Sales

C.M Ratio = ($3,000,000- $1,750,000)/$3,000,000

C.M Ratio = 0.42 or 42%

Break-even point in dollars = Fixed expense/C.M Ratio

B-E point ($) = $850,000/0.42

= $2,023,809.52

Alternative 2

Commission = $2,500,000*5% = $125,000

Change in fixed annual salaries = $150,000-$60,000 = $90,000

Total fixed costs after deducting the changes in fixed salaries = $850,000-$90,000 = $760,000

Contribution margin ratio = Contribution Margin/Sales

C.M Ratio = (Sales - Variable Cost - Commission on sales)/Sales

C.M Ratio = ($2,500,000-$1,750,000-$125,000)/$2,500,000

C.M Ratio = 0.25 or 25%

Explanation:

Sales = $2,500,000

Sales Unit = $2,500,000/500,000 = $5

Variable Cost = 1,750,000

Fixed costs = $850,000

Debit Accounts Receivable, $3,900;

Credit Roofing Fees Revenue, $3,900

Explanation:

Here, no cash transaction was involved. Since the job has been completed but  the customer has not been billed yet, this simply means it has to be debited with accounts receivable, which is recognised as current asset and recognised as revenue for the period, hence needs to be credited.

This means that accounts receivable has to be debited with the amount of $3,900 while roofing fees revenue has to be credited with the amount of $3,900

Considering the above, the adjusting entry the company would need to make on December 31, the calendar year-end would be:

Debit Accounts Receivable, $3,900;

Credit Roofing Fees Revenue, $3.900