Prentice Manufacturing's sales slumped badly in 2010 due to so many people purchasing gifts online. The company's income statement showed the following results from selling 500,000 units of product: net sales $2,125,000; total costs and expenses $2,500,000; and net loss $375,000. Costs and expenses consisted of the following:
Management is considering the following alternative for 2011:
Purchase new automated equipment that will change the proportion between variable and fixed expenses sold to 45% variable and 55% fixed.
Instructions
(a) Compute the break-even point in dollars for 2010.
(b) Compute the break-even point in dollars under the alternative course of action.

Question

Prentice Manufacturing's sales slumped badly in 2010 due to so many people purchasing gifts online. The company's income statement showed the following results from selling 500,000 units of product: net sales $2,125,000; total costs and expenses $2,500,000; and net loss $375,000. Costs and expenses consisted of the following:  
Management is considering the following alternative for 2011:
Purchase new automated equipment that will change the proportion between variable and fixed expenses sold to 45% variable and 55% fixed.
Instructions
(a) Compute the break-even point in dollars for 2010.
(b) Compute the break-even point in dollars under the alternative course of action.

Quizplus · Accepted Answer

The Answer of Prentice Manufacturing's sales slumped badly in 2010 due to so many people purchasing gifts online. The company's income statement showed the following results from selling 500,000 units of product: net sales $2,125,000; total costs and expenses $2,500,000; and net loss $375,000. Costs and expenses consisted of the following:  
Management is considering the following alternative for 2011:
Purchase new automated equipment that will change the proportion between variable and fixed expenses sold to 45% variable and 55% fixed.
Instructions
(a) Compute the break-even point in dollars for 2010.
(b) Compute the break-even point in dollars under the alternative course of action.

Prentice Manufacturing's Sales Slumped Badly in 2010 Due to So