Hi,

I am needing help understanding how to solve the required a-c for the attached case. 5-1 Microimage Technology

Case 203 Selling expenses Variable selling expense: b. Based on the previous information, calculate sales in dollars Shipping and units needed to break even in 2018. Commissions $ 280,000 c. Warren Logan, CFO, has developed assumptions that he Travel 800,000 believes are reasonable for 2018 and 2019. Using these assump- Fixed selling expense: 120,000 tions, prepare budgeted income statements for 2018 and 2019 Salaries Miscellaneous fixed 1,900,000 using the variable costing method. Are the major investors likely to find forecasted profits encouraging? selling expense 650,000 Assumptions for 2018 $ 3,750,000 1. The company will hire two additional sales managers at a base Administrative expenses (all fixed) salary of $90,000 each. Research and development 2. R&D will be cut by $1,100,000. $ 2,700,000 3. Unit sales will increase by 30 percent. Administrative salaries not related to R&D 1,300,000 Miscellaneous administrative expense 900,000 Assumptions for 2019 $ 4,900,000 1. The company will hire one additional sales manager at a base salary of $90,000. 2. R&D will be increased by $600,000 over 2018. REQUIRED 3. Unit sales will increase by 60 percent over 2018. a. Recast the full costing income statement for 2017 into a vari- able costing format. Does it appear, as Sanjay Patel contends, beetypically that the more the company sells, the more it loses?CASE 5-1 MICROIMAGE TECHNOLOGY, INC. [LO 1, 2] Microlmage Technology, Inc. produces miniature digital Warren: color cameras that can be attached to endoscopes and I expected a net loss but not this big. And I certainly didn't expect other medical devices. The cameras sell for $215 per unit and a negative gross profit! It looks like the more we sell, the more are disposed of after each use. For 2017, the company's first full we'll lose. I hope you come to the investor meeting next week with some explanations and some better numbers. year of operation, the company had sales of 80,000 units and a net SP loss of $9,810,000, as follows: Microlmage Technology, Inc. In preparing for the meeting, Warren assembled the following in- Income Statement formation based on results for 2017: For the Year Ended December 31, 2017 Units sold 80,000 Units produced 80,000 Sales $17,200,000 Less cost of goods sold 18,360,000 Selling price $ 215 Gross profit (loss) (1,160,000) Manufacturing costs: Less selling and Direct material costs $ 1,280,000 administrative expenses: Direct labor costs 1,200,000 Selling expense $3,750,000 Variable manufacturing overhead: Administrative expense 4,900,000 8,650,000 Equipment maintenance 160,000 Net loss ($ 9,810,000) Inspection costs 400,000 Miscellaneous variable manufacturing overhead 320,000 The company is closely held, with six major inventors. Early in Fixed manufacturing overhead: the first quarter of 2018, Warren Logan, company CFO, was pre- Rent 1,800,000 paring to meet with them to present profitability estimates for the Depreciation 5,000,000 coming 2 years. He expected the meeting to be somewhat hos- Supervisory salaries 4,500,000 tile. Two days before, he had received an email from one of the Miscellaneous fixed manufacturing overhead 3,700,000 investors, Sanjay Patel: $18,360,000