Question

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 selling 77,000 units of product: net sales $1,540,000; total costs and expenses $1,964,000; and net loss $424,000. Costs and expenses consisted of the following.

		Total		Variable		Fixed
Cost of goods sold		$1,299,600		$773,000		$526,600
Selling expenses		513,400		93,000		420,400
Administrative expenses		151,000		58,000		93,000
		$1,964,000		$924,000		$1,040,000

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 $198,000 to total salaries of $38,005 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.

(a) Compute the break-even point in dollars for 2019.

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.

				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?

Answer 1