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 $1,620,000; and net loss $120,000. Costs and expenses consisted of the following. Total Cost of Goods Sold Selling Expenses Administrative Expenses $962,000 510,000 148,000 1) increase selling price 2) change compensation 3) purchase machinery Variable $451,000 91,000 $ $ $ 58,000 Fixed $511,000 419,000 $1,620,000 $600,000 $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. 90,000 2.Change the compensation of salespersons from fixed annual salaries totaling $205,000 to total salaries of $35,025 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.) (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
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 $1,620,000; and net loss $120,000. Costs and expenses consisted of the following. Total Cost of Goods Sold Selling Expenses Administrative Expenses $962,000 510,000 148,000 1) increase selling price 2) change compensation 3) purchase machinery Variable $451,000 91,000 $ $ $ 58,000 Fixed $511,000 419,000 $1,620,000 $600,000 $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. 90,000 2.Change the compensation of salespersons from fixed annual salaries totaling $205,000 to total salaries of $35,025 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.) (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
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text: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 $1,620,000; and net loss
$120,000. Costs and expenses consisted of the following.
Cost of Goods Sold
Selling Expenses
Administrative Expenses
Total
$962,000
510,000
148,000
1) increase selling price
2) change compensation
3) purchase machinery
Variable
$451,000
91,000
58,000
$
$
$
Fixed
$511,000
419,000
$1,620,000 $600,000 $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.
90,000
2.Change the compensation of salespersons from fixed annual salaries totaling $205,000 to total salaries of $35,025 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.)
(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
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