Problem 19-1A Midlands Inc. had a bad year in 2016. 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 $1,664,000; and net loss $104,000. Costs and expenses consisted of the following. Total Variable Fixed Cost of goods sold $1,002,000 $473,000 $529,000 Selling expenses 511,000 91,000 420,000 Administrative expenses 151,000 60,000 91,000 $1,664,000 $624,000 $1,040,000 Management is considering the following independent alternatives for 2017. 1. Increase unit selling price 25% with no change in costs and expenses. 2. Change the compensation of salespersons from fixed annual salaries totaling $197,000 to total salaries of $42,000 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 2017. (Round contribution margin ratio to 2 decimal places e.g. 0.25 and final answer to 0 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. (Round contribution margin ratio to 4 decimal places e.g. 0.2512 and final answers to 0 decimal places, e.g. 2,510.) Break-even point 1. Increase selling price $ 2. Change compensation $ 3. Purchase machinery $
Problem 19-1A Midlands Inc. had a bad year in 2016. 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 $1,664,000; and net loss $104,000. Costs and expenses consisted of the following. Total Variable Fixed Cost of goods sold $1,002,000 $473,000 $529,000 Selling expenses 511,000 91,000 420,000 Administrative expenses 151,000 60,000 91,000 $1,664,000 $624,000 $1,040,000 Management is considering the following independent alternatives for 2017. 1. Increase unit selling price 25% with no change in costs and expenses. 2. Change the compensation of salespersons from fixed annual salaries totaling $197,000 to total salaries of $42,000 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 2017. (Round contribution margin ratio to 2 decimal places e.g. 0.25 and final answer to 0 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. (Round contribution margin ratio to 4 decimal places e.g. 0.2512 and final answers to 0 decimal places, e.g. 2,510.) Break-even point 1. Increase selling price $ 2. Change compensation $ 3. Purchase machinery $
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Problem 19-1A
Midlands Inc. had a bad year in 2016. 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 $1,664,000; and net loss $104,000. Costs and expenses consisted of the following.
Total
Variable
Fixed
Cost of goods sold
$1,002,000
$473,000
$529,000
Selling expenses
511,000
91,000
420,000
Administrative expenses
151,000
60,000
91,000
$1,664,000
$624,000
$1,040,000
Management is considering the following independent alternatives for 2017.
1. Increase unit selling price 25% with no change in costs and expenses.
2. Change the compensation of salespersons from fixed annual salaries totaling $197,000 to total salaries of $42,000 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 2017. (Round contribution margin ratio to 2 decimal places e.g. 0.25 and final answer to 0 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. (Round contribution margin ratio to 4 decimal places e.g. 0.2512 and final answers to 0
decimal places, e.g. 2,510.)
Break-even point
1. Increase selling price
$
2. Change compensation
$
3. Purchase machinery
$
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