Question
Midlands Inc. had a bad year in 2016. For the first time in its history, it operated at a loss. The companys income statement showed
Midlands Inc. had a bad year in 2016. For the first time in its history, it operated at a loss. The companys income statement showed the following results from selling 77,000 units of product: net sales $1,540,000; total costs and expenses $1,656,000; and net loss $116,000. Costs and expenses consisted of the following.
Total | Variable | Fixed | ||||
---|---|---|---|---|---|---|
Cost of goods sold | $984,000 | $465,000 | $519,000 | |||
Selling expenses | 521,000 | 93,000 | 428,000 | |||
Administrative expenses | 151,000 | 58,000 | 93,000 | |||
$1,656,000 | $616,000 | $1,040,000 |
Management is considering the following independent alternatives for 2017.
1. | Increase unit selling price 25% with no change in costs and expenses. | |
---|---|---|
2. | Change the compensation of salespersons from fixed annual salaries totaling $198,000 to total salaries of $38,000 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. |
(a) Compute the break-even point in dollars for 2017. (Round contribution margin ratio to 2 decimal places e.g. 0.25 and final answer to 0 decimal places, e.g. 2,510.)
Break-even point | $enter the break-even point in dollars rounded to 0 decimal places |
(b) Compute the break-even point in dollars under each of the alternative courses of action. (Round contribution margin ratio to 4 decimal places e.g. 0.2512 and final answers to 0 decimal places, e.g. 2,510.)
Break-even point | ||||
---|---|---|---|---|
1. | Increase selling price | $enter a dollar amount rounded to 0 decimal places | ||
2. | Change compensation | $enter a dollar amount rounded to 0 decimal places | ||
3. | Purchase machinery | $enter a dollar amount rounded to 0 decimal places |
Which course of action do you recommend? select a course of action using the break-even analysis Alternative 1Alternative 2Alternative 3
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