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 $1,800,000; and net loss $240,000. Costs and expenses consisted of the following. Total Variable Fixed Cost of goods sold $1,141,200 $633,000 $508,200 Selling expenses 512,800 91,000 421,800 Administrative expenses 146,000 56,000 90,000 $1,800,000 $780,000 $1,020,000 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 $204,000 to total salaries of $44,985 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

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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 $1,800,000; and net loss $240,000. Costs and expenses consisted of the following.

	Total	Variable	Fixed
Cost of goods sold	$1,141,200	$633,000	$508,200
Selling expenses	512,800	91,000	421,800
Administrative expenses	146,000	56,000	90,000
	$1,800,000	$780,000	$1,020,000

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 $204,000 to total salaries of $44,985 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

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