Question

Problem 19-1A

Midlands Inc. had a bad year in 2016. For the first time in its history, it operated at a loss. The company’s income statement showed the following results from selling 76,000 units of product: net sales $1,520,000; total costs and expenses $1,780,000; and net loss $260,000. Costs and expenses consisted of the following.

		Total		Variable		Fixed
Cost of goods sold		$1,117,000		$611,000		$506,000
Selling expenses		514,000		93,000		421,000
Administrative expenses		149,000		56,000		93,000
		$1,780,000		$760,000		$1,020,000

Management is considering the following independent alternatives for 2017.

1.		Increase unit selling price 30% with no change in costs and expenses.
2.		Change the compensation of salespersons from fixed annual salaries totaling $199,000 to total salaries of $36,000 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 2017. (Round contribution margin ratio to 2 decimal places e.g. 0.25 and final answer to 0 decimal places, e.g. 2,510.)

Break-even point

$ 2040000

(b) Compute the break-even point in dollars under each of the alternative courses of action. (Round contribution margin ratio to 4 decimal places e.g. 0.2512 and final answers to 0 decimal places, e.g. 2,510.)

				Break-even point
1.		Increase selling price		$ 1657500
2.		Change compensation		$ 1904444
3.		Purchase machinery		$

Answer 1