Question
Midlands Inc. had a bad year in 2019. For the first time in its history, it operated at a loss. The companys income statement showed
Midlands Inc. had a bad year in 2019. For the first time in its history, it operated at a loss. The companys income statement showed the following results from selling 79,000 units of product: net sales $1,580,000; total costs and expenses $1,829,800; and net loss $249,800. Costs and expenses consisted of the following.
Total | Variable | Fixed | ||||
---|---|---|---|---|---|---|
Cost of goods sold | $1,163,400 | $637,000 | $526,400 | |||
Selling expenses | 516,400 | 93,000 | 423,400 | |||
Administrative expenses | 150,000 | 60,000 | 90,000 | |||
$1,829,800 | $790,000 | $1,039,800 |
Management is considering the following independent alternatives for 2020.
1. | Increase unit selling price 25% with no change in costs and expenses. | |
2. | Change the compensation of salespersons from fixed annual salaries totaling $195,000 to total salaries of $39,000 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 2019. (Round contribution margin ratio to 4 decimal places e.g. 0.2512 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 for 2020. (Round contribution margin ratio to 3 decimal places e.g. 0.251 and final answers to 0 decimal places, e.g. 2,510.)
Break-even point | ||||
---|---|---|---|---|
1. | Increase selling price | $Enter a dollar amount | ||
2. | Change compensation | $Enter a dollar amount | ||
3. | Purchase machinery | $Enter a dollar amount |
Which course of action do you recommend? Select an option
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