Question 3

Midlands Inc. had a bad year in 2019. For the first time in its history, it operated at a loss. The company's income statement showed the following results from selling75,000units of product: net sales $1,500,000; total costs and expenses $1,620,000; and net loss $120,000. Costs and expenses consisted of the following.

1.Increase unit selling price25% with no change in costs and expenses.

2.Change the compensation of salespersons from fixed annual salaries totaling $205,000to total salaries of $35,025plus 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.

Break-even point$

(b)Compute the break-even point in dollars under each of the alternative courses of action for 2020.

Break-even point

1.Increase selling price$

2.Change compensation$

3.Purchase machinery$

Which course of action do you recommend?

Alternative 1

Alternative 2

Alternative 3