Question

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 77,000 units of product: net sales $2,310,000; total costs and expenses $2,180,000; and net loss $-130,000. Costs and expenses consisted of the following.

		Total		Variable		Fixed
Cost of goods sold		$1,505,000		$1,003,000		$502,000
Selling expenses		522,000		92,000		430,000
Administrative expenses		153,000		60,000		93,000
		$2,180,000		$1,155,000		$1,025,000

Management is considering the following independent alternatives for 2017.

1.		Increase unit selling price 20% with no change in costs and expenses.
2.		Change the compensation of salespersons from fixed annual salaries totaling $201,000 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

$ 205000

(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		$
2.		Change compensation		$
3.		Purchase machinery		$

Which course of action do you recommend?

Alternative 1

I do not know how to get the middle section of this question 1., 2.,3.

Answer 1