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 78,000 units of product: net sales $1,560,000; total costs and expenses $1,789,800; and net loss $229,800. Costs and expenses consisted of the following. Total Variable Fixed Cost of goods sold $1,129,600 $635,000 $494,600 Selling expenses 513,200 90,000 423,200 Administrative expenses 147,000 55,000 92,000 $1,789,800 $780,000 $1,009,800 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 $201,000 to total salaries of $39,000 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 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

Answer 1