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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 $1,637,040; and net loss $57,040. Costs and expenses consisted of the following.

Total

Variable

Fixed

Cost of goods sold $972,000 $486,000 $486,000
Selling expenses 517,040 90,000 427,040
Administrative expenses 148,000 56,000 92,000
$1,637,040 $632,000 $1,005,040

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 $203,000 to total salaries of $36,985 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 Alternative 1Alternative 2Alternative 3

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