Reference no: EM13481769

Cruz Manufacturing had a bad year in 2008. For the first time inits history it operated at a loss. The company's incomestatement showed the following results from selling 80,000 units ofproduct: Net sales $1,600,000; total costs and expenses $1,740,000;and net loss $140,000. Costs and expenses consisted of thefollowing.

	Total		Variable		Fixed
	Cost of goods sold	$1,200,000	$780,000	$420,000
	Selling expenses	420,000	75,000	345,000
	Administrative expenses	120,000	45,000	75,000
		$1,740,000	$900,000	$840,000

Management is considering the following independent alternativesfor 2009.

1. Increase unit selling price 25% with no change in costs andexpenses.
2. Change the compensation of salespersons from fixed annualsalaries totaling $200,000 to total salaries of $40,000 plus a 5%commission on net sales.
3. Purchase new high-tech factory machinery that will change theproportion between variable and fixed cost of goods sold to50:50.

Compute the break-even point in dollars for 2008. $ 1,920,000 Compute the break-even point in dollars under each of thealternative courses of action. Which alternative isthe recommended course of action?