Pharoah Inc. had a bad year in 2021. For the first time in its history, it operated at a loss. The company's income statement showed the following results from selling 89,600 units of product: net sales $2,240,000; total costs and expenses $2,503,200; and net loss $263,200. Costs and expenses consisted of the following. Cost of goods sold Selling expenses Administrative expenses 1. 2. Total $1,756,160 3. 579,040 Variable $1,176,000 $580,160 476,000 103,040 $2,503,200 $1,344,000 $1,159,200 168,000. Management is considering the following independent alternatives for 2022, Fixed 103,040 64,960 Increase unit selling price 25% with no change in costs and expenses. Change the compensation of salespersons from fixed annual salaries totaling $224,000 to total salaries of $44,800 plus a 5% commission on net sales. Purchase new high-tech factory machinery that will change the proportion between variable and fixed cost of goods sold to 50-50
Pharoah Inc. had a bad year in 2021. For the first time in its history, it operated at a loss. The company's income statement showed the following results from selling 89,600 units of product: net sales $2,240,000; total costs and expenses $2,503,200; and net loss $263,200. Costs and expenses consisted of the following. Cost of goods sold Selling expenses Administrative expenses 1. 2. Total $1,756,160 3. 579,040 Variable $1,176,000 $580,160 476,000 103,040 $2,503,200 $1,344,000 $1,159,200 168,000. Management is considering the following independent alternatives for 2022, Fixed 103,040 64,960 Increase unit selling price 25% with no change in costs and expenses. Change the compensation of salespersons from fixed annual salaries totaling $224,000 to total salaries of $44,800 plus a 5% commission on net sales. Purchase new high-tech factory machinery that will change the proportion between variable and fixed cost of goods sold to 50-50
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter5: The Income Statement And The Statement Of Cash Flows
Section: Chapter Questions
Problem 2MC: The following information is available for Cooke Company for the current year: The gross margin is...
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![Pharoah Inc. had a bad year in 2021. For the first time in its history, it operated at a loss. The company's income statement showed the
following results from selling 89,600 units of product: net sales $2,240,000; total costs and expenses $2,503,200; and net loss.
$263,200. Costs and expenses consisted of the following.
Cost of goods sold
Selling expenses
Administrative expenses
Variable
$1,756,160 $1,176,000
2.
Total
3.
103,040
64,960
579,040
168,000
$2,503,200 $1,344,000
Management is considering the following independent alternatives for 2022.
Fixed
$580,160
476,000
103,040
$1,159,200
1. Increase unit selling price 25% with no change in costs and expenses.
Change the compensation of salespersons from fixed annual salaries totaling $224,000 to total salaries of $44,800 plus a 5%
commission on net sales.
Purchase new high-tech factory machinery that will change the proportion between variable and fixed cost of goods sold to
50-50](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F83b62d92-ae46-4dd3-8277-7ec31e6fe3f8%2F03b3cfa9-156f-482b-a06e-85fa1522cea2%2Fspu52ac_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Pharoah Inc. had a bad year in 2021. For the first time in its history, it operated at a loss. The company's income statement showed the
following results from selling 89,600 units of product: net sales $2,240,000; total costs and expenses $2,503,200; and net loss.
$263,200. Costs and expenses consisted of the following.
Cost of goods sold
Selling expenses
Administrative expenses
Variable
$1,756,160 $1,176,000
2.
Total
3.
103,040
64,960
579,040
168,000
$2,503,200 $1,344,000
Management is considering the following independent alternatives for 2022.
Fixed
$580,160
476,000
103,040
$1,159,200
1. Increase unit selling price 25% with no change in costs and expenses.
Change the compensation of salespersons from fixed annual salaries totaling $224,000 to total salaries of $44,800 plus a 5%
commission on net sales.
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 sales dollars for 2021. (Round contribution margin ratio to 4 decimal places e.g. 0.2512 a.
answer to O decimal places, e.g. 2,510.)
Break-even point $
(b) Compute the break-even point in sales dollars under each of the alternative courses of action for 2022. (Round contributa
ratio to 3 decimal places e.g. 0.251 and final answers to 0 decimal places, e.g. 2,510.).
1.
2.
3.
Increase selling price
Change compensation
Purchase machinery
$
$
Break-even point
Which course of action do you recommend?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F83b62d92-ae46-4dd3-8277-7ec31e6fe3f8%2F03b3cfa9-156f-482b-a06e-85fa1522cea2%2Fcd1m9b_processed.jpeg&w=3840&q=75)
Transcribed Image Text:(a) Compute the break-even point in sales dollars for 2021. (Round contribution margin ratio to 4 decimal places e.g. 0.2512 a.
answer to O decimal places, e.g. 2,510.)
Break-even point $
(b) Compute the break-even point in sales dollars under each of the alternative courses of action for 2022. (Round contributa
ratio to 3 decimal places e.g. 0.251 and final answers to 0 decimal places, e.g. 2,510.).
1.
2.
3.
Increase selling price
Change compensation
Purchase machinery
$
$
Break-even point
Which course of action do you recommend?
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