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 $1,975,000; total costs and expenses $1,997,300; and net loss $22,300. Costs and expenses consisted of the following. Cost of goods sold Selling expenses Total Variable Fixed $1,345,250 $840,500 $504,750 506,050 91,000 415,050 146,000 56,000 90,000 $1,997,300 $987,500 $1,009,800 Administrative expenses 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 $199,000 to total salaries of $42,985 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.

Answer 1

Answers A) Break Even Point in Dollars 2019600 B) 1) increasing Selling Price 1683000 2) Change Compensation 1897300 3) Purchase Machinery 2013120 Whichcourse of Action Do you recommend Increasing Selling Price , alternative 1

total / 1345250 506050 146000 1997300 Variable 840500 91000 56000 Cost of goods Sold Selling Expenses Administrative Expenses total Sales Units Sales Revneue Less:Varaible Cost Contribution Margin Less: Fixed Cost Net Loss Fixed 504750 415050 90000 1009800 79000 1975000 987500 987500 1009800 -223001 Break Even Dollars = Fixed Cost / CM Ratio CM Ratio = Contribution Margin / Sales CM Ratio =987500/1975000 Break Even Dollars =1009800/50% 50.00% 2019600

IF Units Selling Price is Increased by 25% Sales Revneue = (1975000*1.25)) 2468750 Less:Varaible Cost 987500 Contribution Margin 1481250 CM Ratio = 1481250/2468750 60.00% Break Even Dollars = 1009800/60% 1683000 Compensations to Sales Persona from Fixed Annula Salaries to $42985 Plus 5% Common on net Sales Total Variable Fixed Reveised cost Data Cost of goods Sold 1345250 840500 5 04750 Selling Expenses 448785 189750| 259035 Administrative Expenses 146000 56000 90000 total 1940035 1086250 853785 Sales Revneue 19750001 Less:Varaible Cost 1086250 Contribution Margin 888750 CM Ratio -888750/1975000 45.00% Break Even Dollars =853785/45% 1897300

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 1345250 672625 672625 Selling Expenses 506050 91000 415050 Administrative Expenses 146000 56000 90000 total 1997300 819625 1177675 Sales Revenue 1975000 Less:Varaible Cost 819625 Contribution Margin 1155375 CM Ratio = 1155375/1975000 58.50% Break Even Dollars =1177675/54.50% 2013120