Question

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 79,000 units of product: net sales $1,580,000; total costs and expenses $1,968,240; and net loss $388,240. Costs and expenses consisted of the following: Total Variable $1,307,600 $796,000 512,640 94,000 Fixed $511,600 Cost of goods sold Selling expenses 418,640 Administrative expenses 148,000 $1,968.240 58,000 90,000 $948,000 $1,020,240 Management is considering the following independent alternatives for 2020. 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 2019. (Round contribution margin ratio to 4 decimal places eg. 0.2512 and final answer to 0 decimal places, e.g. 2,510.) Break-even point $ 2550600 i (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 decimal places, eg. 2,510.) Break-even point 1. Increase selling price 1500352.941 2. Change compensation $ 2466400 3. Purchase machinery 2608885

Answer 1

Answers A) Break Even Point in Dollars 2550600 B) 1) increasing Selling Price 1962000 2) Change Compensation 2466400 3) Purchase Machinery 2372327 Which course of Action Do you recommend Increasing Selling Price , alternative 1

Data total 1307600 512640 148000 1968240 Variable 796000 940001 58000 Cost of goods Sold Selling Expenses Administrative Expenses total Sales Units Sales Revneue Less:Varaible Cost Contribution Margin Less: Fixed Cost Net Loss Fixed 511600 4186401 90000 1020240 79000 1580000 948000 6320001 1020240 -3882401 Break Even Dollars = Fixed Cost / CM Ratio CM Ratio = Contribution Margin / Sales CM Ratio =632000/1580000 Break Even Dollars =1020240/40% 40.00% 2550600

IF Units Selling Price is Increased by 25% Sales Revneue = (1580000*1.25)) 1975000 Less:Varaible Cost 948000 Contribution Margin 1027000 CM Ratio = 1027000/158000 52.00% Break Even Dollars =1020240/52% 1962000 Compensations to Sales Persona from Fixed Annula Salaries to $43000 Plus 5% Common on net Sales Total Variable Fixed Reveised cost Data Cost of goods Sold 1307600 796000 511600 Selling Expenses 434640 173000 2616401 Administrative Expenses 148000 58000 90000 total 1890240 1027000 863240 Sales Revneue 1580000 Less:Varaible Cost 1027000 Contribution Margin 553000 CM Ratio = 553000/1580000 35.00% Break Even Dollars =553000/35% 2466400

Change the Proportion of Cost of good sold of Variable and Fixed into 50:50 Reveised cost Data Total Variable Fixed Cost of goods Sold 1307600653800653800 Selling Expenses 512640 94000 418640 Administrative Expenses 148000 58000 90000 total 1968240 805800 1162440 Sales Revenue 1580000 Less:Varaible Cost 805800 Contribution Margin 774200 CM Ratio = 774200/1580000 49.00% Break Even Dollars =1162440/49% 2372327