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 75,000 units of product: net sales $1,500,000; total costs and expenses $1,750,200; and net loss $250,200. Costs and expenses consisted of the following.

		Total		Variable		Fixed
Cost of goods sold		$1,080,000		$600,000		$480,000
Selling expenses		520,200		95,000		425,200
Administrative expenses		150,000		55,000		95,000
		$1,750,200		$750,000		$1,000,200

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 $37,995 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