Midlands 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 80,000 units of product: net sales $2,000,000; total costs and expenses $2,235,000; and net loss $235,000. Costs and expenses consisted of the following.

Management is considering the following independent alternatives for 2022.

1. Increase unit selling price 25% with no change in costs and expenses.

2. Change the compensation of salespersons from fixed annual salaries 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 the proportion between variable and fixed cost of goods sold to 50:50.

Instructions

a. Compute the break-even point in sales dollars for 2021.
b. Compute the break-even point in sales dollars under each of the alternative courses of action for 2022. 

Transcribed Image Text:

Total Variable Fixed $ 518,000 Cost of goods sold Selling expenses Administrative expenses $1,568,000 517,000 $1,050,000 92,000 425,000 150,000 58,000 92,000 $2,235,000 $1,200,000 $1,035,000