Chapter 6, Problem 6.1AP

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 80,000 units of product: net sales $2,000,000: total costs and expenses $2,235,000: and net loss $235,000. Costs and expenses consisted of the following.

Compute break-even point under alternative courses of action.

(LO 1), AN

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 $200,000 to total salaries of $40,000 plus a 3% 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.

Instructions

(a) Compute the break-even point in dollars for 2017.

(b) Compute the break-even point in dollars under each of the alternative courses of action. (Round to the nearest dollar.) Which course of action do you recommend?

(b) (2) $2,500,000