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 79,000 units of product: net sales $1,580,000; total costs and expenses $1,637,040; and net loss $57,040. Costs and expenses consisted of the following.

		Total		Variable		Fixed
Cost of goods sold		$972,000		$486,000		$486,000
Selling expenses		517,040		90,000		427,040
Administrative expenses		148,000		56,000		92,000
		$1,637,040		$632,000		$1,005,040

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 $203,000 to total salaries of $36,985 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                                                           Alternative 1Alternative 2Alternative 3

Answer 1