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Olgivie Company 60000

Price: $2.50

Olgivie Company had a bad year in 2013. For the first time in its history, it operated
at a loss. The company’s income statement showed the following results from selling
60,000 units of product: sales $1,800,000; total costs and expenses $2,010,000; and net loss
$210,000. Costs and expenses consisted of the amounts shown below.

    Total    Variable    Fixed  
Cost of goods sold   1,350,000  930,000  420,000
Selling expenses   480,000  125,000  355,000
Administrative expenses   180,000  115,000  65,000
   2,010,000  1,170,000  840,000

Management is considering the following independent alternatives for 2014.
1. Increase unit selling price 25% with no change in costs, expenses, and sales volume.
2. Change the compensation of salespersons from fixed annual salaries totaling $200,000
to total salaries of $20,000 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.

(a) Compute the break-even point in dollars for 2013.
(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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