Werth & Garza Manufacturing's Sales Slumped Badly in 2016 Due

question 119

Essay

Werth & Garza Manufacturing's sales slumped badly in 2016 due to so many people purchasing gifts online. The company's income statement showed the following results from selling 500000 units of product: net sales $2125000; total costs and expenses $2500000; and net loss $375000. Costs and expenses consisted of the following: $\begin{array}{lrrr}&\underline{\text { Total }} &\underline{\text { Variable } }&\underline{ \text { Fixed }}\\\text { Cost of goods sold } & \$ 2,000,000 & \$ 1,300,000 & \$ 700,000 \\\text { Selling expenses } & 200,000 & 50,000 & 150,000 \\\text { Administrative expenses } &\underline{300,000}&\underline{150,000}&\underline{150,000}\\&\underline{\$2,500,000}&\underline{\$1,500,000}&\underline{1,000,000}\end{array}$ Management is considering the following alternative for 2016:
Purchase new automated equipment that will change the proportion between variable and fixed expenses to 45% variable and 55% fixed.
Instructions
(a) Compute the break-even point in dollars for 2016.
(b) Compute the break-even point in dollars under the alternative course of action.

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Definitions:

Continuous Flow

A production process where products move continuously through a series of operations, reducing wait times and inventory levels.