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 following results from selling 75,000 units of product: net sales $2,250,000; total costs and expenses $2,374,920; and net loss $124,920. Costs and expenses consisted of the following. Cost of goods sold Selling expenses Administrative expenses 1. 2. Total Variable $1,692,500 $1,195,000 3. 532,420 150,000 95,000 60,000 $2,374,920 $1,350,000 Fixed $497,500 437,420 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 $196,000 to total salaries of $41,005 plus a commission on net sales. 90,000 $1,024,920 Purchase new high-tech factory machinery that will change the proportion between variable and fixed cost of goods sold t 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 answe decimal places, e.g. 2,510.)
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 following results from selling 75,000 units of product: net sales $2,250,000; total costs and expenses $2,374,920; and net loss $124,920. Costs and expenses consisted of the following. Cost of goods sold Selling expenses Administrative expenses 1. 2. Total Variable $1,692,500 $1,195,000 3. 532,420 150,000 95,000 60,000 $2,374,920 $1,350,000 Fixed $497,500 437,420 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 $196,000 to total salaries of $41,005 plus a commission on net sales. 90,000 $1,024,920 Purchase new high-tech factory machinery that will change the proportion between variable and fixed cost of goods sold t 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 answe decimal places, e.g. 2,510.)
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text:(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 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 e.g. 0.251 and final answers to 0 decimal places, e.g. 2,510.)
1.
$
2.
Increase selling price $
Change compensation
3. Purchase machinery
$
$
Break-even point
Which course of action do you recommend?
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 $2,250,000; total costs and expenses $2,374,920; and net loss
$124.920. Costs and expenses consisted of the following.
Cost of goods sold
Selling expenses
Administrative expenses
1.
2.
Total
Variable
$1,692,500 $1,195,000
3.
532,420
150,000
$2,374,920
95,000
60,000
$1,350,000
Fixed
$497,500
437,420
Management is considering the following independent alternatives for 2020.
90,000
$1,024,920
Increase unit selling price 25% with no change in costs and expenses.
Change the compensation of salespersons from fixed annual salaries totaling $196,000 to total salaries of $41,005 plus a 5%
commission on net sales.
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.)
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