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    cost-volume-profit analysis

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    Cruz Manufacturing had a bad year in 2008. For the first time in its history it operated at a loss. The company's income statement showed the following results from selling 80,000 units of product: Net sales $1,600,000; total costs and expenses $1,740,000; and net loss $140,000. Costs and expenses consisted of the following.

    Total Variable Fixed
    Cost of goods sold $1,200,000 $780,000 $420,000
    Selling expenses 420,000 75,000 345,000
    Administrative expenses 120,000 45,000 75,000
    $1,740,000 $900,000 $840,000

    Management is considering the following independent alternatives for 2009.
    1. Increase unit selling price 25% with no change in costs and expenses.

    2. Change the compensation of salespersons from fixed annual salaries totaling $200,000 to total salaries of $40,000 plus a 5% 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.

    Compute break-even point under alternative courses of action.

    (a) Compute the break-even point in dollars for 2008.

    (b) Compute the break-even point in dollars under each of the alternative courses of action. (Round to the nearest dollar.) Which course of action do you recommend?

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    Solution Summary

    Compute the break-even point in dollars in this case.