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Dousmann Corp 2500000

Price: $2.50

Dousmann Corp.’s sales slumped badly in 2014. 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.

    Total    Variable    Fixed  
Cost of goods sold   2,140,000  1,540,000  600,000
Selling expenses   250,000  92,000  158,000
Administrative expenses   210,000  68,000  142,000
   2,600,000  1,700,000  900,000

Management is considering the following independent alternatives for 2015.
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.

(a) Compute the break-even point in dollars for 2014.
(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?

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