Gorham Manufacturing’s sales slumped badly in 2008. For the first time in its history, it operated at a loss.
Gorham Manufacturing’s sales slumped badly 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 600,000 units of product: Net sales $2,400,000; total costs and expenses $2,540,000; and net loss $140,000. Costs and expenses consisted of the amounts shown below. Total Variable Fixed Cost of goods sold $2,100,000 $1,440,000 $660,000 Selling expenses 240,000 72,000 168,000 Administrative expenses 200,00048,000152,000$2,540,000$1,560,000$980,000Management is considering the following independent alternatives for 2009.1.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 $210,000 to total salaries of $60,000 plus a 5% commission on net sales.Compute the break-even point in dollars for 2008.$Compute the break-even point in dollars under each of the alternative courses of action. (Round unit price to 2 decimal places, e.g. 10.50 and all ratios and final answers to 0 decimal places, e.g. 125.)1. $2. $Which course of action do you recommend?