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 $1,580,000; total costs and expenses $1,968,000; and net loss $388,000. Costs and expenses consisted of the following.

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. Cost of goods sold Selling expenses Administrative expenses $1,300,000 520,000 148,000 $1,968,000 $796,000 94,000 58,000 $948,000 5504,000 426,000 90,000 $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.) 1. Increase selling price 2. Change compensation 3. Purchase machinery Which course of action do you recommend?

Answer 1

Answers 2550000 A) Break Even Point in Dollars B) 1) increasing Selling Price 1961538 2) Change Compensation 2465714 3) Purchase Machinery 2367994 Whichcourse of Action Do you recommend Increasing Selling Price

Data Cost of goods Sold 1300000 796000 504000 Selling Expenses 520000 94000 426000 58000 Administrative Expenses 148000 90000 total 1968000 9480001020000 Sales Units 79000 Sales Revneue 1580000 Less:Varaible Cost 948000 Contribution Margin 632000 Less: Fixed Cost 1020000 Net Loss 388000

Break Even Dollars-Fixed Cost/ CM Ratio CM Ratio- Contribution Margin/Sales CM Ratio 632000/1580000 Break Even Dollars-1020000/40% 40% 2550000 IF Units Selling Price is incxreased by 25% Sales Revneue = (1580000*1+25%) 1975000 Less:Varaible Cost 948000 Contribution Margin 1027000 CM Ratio 237000/1975000 52.00% Break Even Dollars-1020000/20% 1961538

Compensations to Sales Persona from Fixed Annula Salaries to $43,000 Plus 5% Common on net Sales Variable Total Fixed Reveised cost Data Cost of goods Sold 1300000 796000504000 Selling Expenses 442000 173000269000 58000 Administrative Expenses 148000 90000 1890000 1027000 863000 Sales Revneue 1580000 Less:Varaible Cost 1027000 Contribution Margin 553000 CM Ratio 553000/1580000 35.00% Break Even Dollars :863000/35% 2465714

Change the Proportion of Cost of good sold of Variable and Fixed into 50:50 Reveised cost Data Variable Total Fixed Cost of goods Sold 1300000 650000 650000 Selling Expenses 520000 94000 426000 58000 Administrative Expenses 148000 90000 1968000 802000 1166000 Sales Revenue 1580000 Less:Varaible Cost 802000 Contribution Margin 778000 CM Ratio 778000/1580000 49.24% Break Even Dollars-1166000/49.24% 2367994

Note : Answers Will be sensitive to the Round off Factors. For Any Further Clarification& Explanation Plases Use the Comment Box.Thank You Verv much