Problem:

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.

Required:

Question 1: Compute the break-even point in dollars for 2013.

Question 2: 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?

Note: Be sure to show how you arrived at your answer.