Question

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 $1,975,000; total costs and expenses $1,805,000; and net loss $-170,000. Costs and expenses consisted of the following. Total Variable Fixed $503,000 Cost of goods sold Selling expenses $1,148,000 510,000 $645,000 90,000 420,000 Administrative expenses 147,000 $1,805,000 55,000 92,000 $790,000 $1,015,000 Management is considering the following independent alternatives for 2017. 1. Increase unit selling price 30% with no change in costs and expenses. 2. Change the compensation of salespersons from fixed annual salaries totaling $205,000 to total salaries of $36,000 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 eg. 0.25 and final answer to 0 decimal places, e.g. 2,510.) Break-even point $ 2030000

Answer 1

Answers A) Break Even Point in Dollars 1691667 B) 1) increasing Selling Price 1466111 2) Change Compensation 1538182 3) Purchase Machinery 1707816 (or) 1707683 Whichcourse of Action Do you recommend Increasing Selling Price , alternative 1

Data total 1148000 510000 147000 1805000 Variable 645000 90000 55000 790000 Cost of goods Sold Selling Expenses Administrative Expenses total Sales Revneue Less:Varaible Cost Contribution Margin Less: Fixed Cost Net Loss Fixed 503000 420000 92000 1015000 1975000 790000 1185000 1015000 170000 Break Even Dollars = Fixed Cost / CM Ratio CM Ratio = Contribution Margin / Sales 60% CM Ratio = 1185000/1975000 Break Even Dollars =1015000/60% 1691667

IF Units Selling Price is Increased by 30% Sales Revneue = (1975000*1.30)) 2567500 Less:Varaible Cost 790000 Contribution Margin 1777500 CM Ratio = 1777500/2567500 69.23% Break Even Dollars =1015000/69.23% 1466111 Compensations to Sales Persona from Fixed Annula Salaries to 36000 Plus 5% Common on net Sales Total Variable Fixed Reveised cost Data Cost of goods Sold 1148000 6 45000 503000 Selling Expenses 4397501 1887501 251000 Administrative Expenses 147000 55000 92000 total 1734750888750 846000 Sales Revneue 1975000 Less:Varaible Cost 888750 Contribution Margin 1086250 CM Ratio - 1086250/1975000 55.00% Break Even Dollars =888750/55% 1538182

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 1148000 574000 574000 Selling Expenses 510000 90000 420000 Administrative Expenses 147000 55000 92000 total 1805000 719000 1086000 Sales Revenue 1975000 Less:Varaible Cost 719000 Contribution Margin 1256000 CM Ratio = 1256000/1975000 63.59% Break Even Dollars =1086000/63.59% 1707816