Reference no: EM131746251
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 79,000 units of product: net sales $1,580,000; total costs and expenses $1,968,000; and net loss $388,000. Costs and expenses consisted of the following.
Total Variable Fixed
Cost of goods sold $1,300,000 $796,000 $504,000
Selling expenses 520,000 94,000 426,000
Administrative expenses 148,000 58,000 90,000
$1,968,000 $948,000 $1,020,000
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 $200,000 to total salaries of $43,000 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 2016.(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 for 2017.(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 $