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 77,000 units of product: net sales $1,540,000; total costs and expenses $1,636,000; and net loss $96,000. Costs and expenses consisted of the following. Total Variable Fixed Cost of goods sold $962,800 $466,000 $496,800 Selling expenses 524,200 94,000 430,200 Administrative expenses 149,000 56,000 93,000 $1,636,000 $616,000 $1,020,000 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 $197,000 to total salaries of $40,005 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.
(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 | ||||
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1. | Increase selling price |
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2. | Change compensation |
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3. | Purchase machinery |
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