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 77,000 units of product: net sales $1.540,000; total costs and expenses $1,964,000; and net loss $424,000. Costs and expenses consisted of the following. Cost of goods sold Selling expenses Administrative expenses Manager Total Variable $1,299,600 $773,000 513,400 93,000 151,000 58,000 $1,964,000 $924,000 Fixed $526,600 420,400 93,000 $1,040,000

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Chapter1: Financial Statements And Business Decisions
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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 77,000 units of product: net sales $1.540,000; total costs and expenses $1,964,000; and net loss
$424,000. Costs and expenses consisted of the following.
Cost of goods sold
Selling expenses
Administrative expenses
1.
2.
Total
$1,299,600
513,400
3.
151,000
Variable
$773,000
93,000
58,000
Management is considering the following independent alternatives for 2020.
Increase unit selling price 25% with no change in costs and expenses.
Change the compensation of salespersons from fixed annual salaries totaling $198,000 to total salaries of $38,005 plus a 5%
commission on net sales.
$1,964,000 $924,000
Fixed
$526,600
420,400
93,000
$1,040,000
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 eg. 0.2512 and final answer to 0
decimal places, e.g. 2,510)
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 77,000 units of product: net sales $1.540,000; total costs and expenses $1,964,000; and net loss $424,000. Costs and expenses consisted of the following. Cost of goods sold Selling expenses Administrative expenses 1. 2. Total $1,299,600 513,400 3. 151,000 Variable $773,000 93,000 58,000 Management is considering the following independent alternatives for 2020. Increase unit selling price 25% with no change in costs and expenses. Change the compensation of salespersons from fixed annual salaries totaling $198,000 to total salaries of $38,005 plus a 5% commission on net sales. $1,964,000 $924,000 Fixed $526,600 420,400 93,000 $1,040,000 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 eg. 0.2512 and final answer to 0 decimal places, e.g. 2,510)
(a) Compute the break-even point in dollars for 2019. (Round contribution margin ratio to 4 decimal places eg. 0.2512 and final answer to O
decimal places, e.g. 2,510.)
Break-even point
(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 eg. 0.251 and final answers to O decimal places, eg. 2,510.)
1.
2
$
3.
Increase selling price $
Change compensation
Purchase machinery
$
$
Break-even point
Which course of action do you recommend?
Transcribed Image Text:(a) Compute the break-even point in dollars for 2019. (Round contribution margin ratio to 4 decimal places eg. 0.2512 and final answer to O decimal places, e.g. 2,510.) Break-even point (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 eg. 0.251 and final answers to O decimal places, eg. 2,510.) 1. 2 $ 3. Increase selling price $ Change compensation Purchase machinery $ $ Break-even point Which course of action do you recommend?
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