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 80,000 units of product: net sales $1,600,000; total costs and expenses $1,815,200; and net loss $215,200. Costs and expenses consisted of the following.
Total | Variable | Fixed | ||||
---|---|---|---|---|---|---|
Cost of goods sold | $1,156,000 | $650,000 | $506,000 | |||
Selling expenses | 512,200 | 93,000 | 419,200 | |||
Administrative expenses | 147,000 | 57,000 | 90,000 | |||
$1,815,200 | $800,000 | $1,015,200 |
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 $199,000 to total salaries of $45,010 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 | ? |
(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 | $? | ||
2. | Change compensation | $? | ||
3. | Purchase machinery | $? |
Which course of action do you recommend? Select an option between Alternative 1, 2, or 3.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started