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Midlands Inc. had a bad year in 2019. For the first time in its history, it operated at a loss. The companys income statemen
Midlands Inc. had a bad year in 2019. For the first time in its history, it operated at a loss. The companys income statemen
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Answer #1

(a)

Working Note:

Income Statement for Year 2019

Particulars Amount
Sales    1,500,000.00
Less: Variable expenses        750,000.00
Contribution        750,000.00
Less: Fixed Expenses    1,000,200.00
    (250,200.00)

Break-even point in dollars for 2019 =   (Fixed cost) / Contribution margin ratio   

Contribution Margin Ratio= Total contribution/ Total sales units

= 750000/75000

= 10

Break-even point in dollars for 2019 =   (Fixed cost) / Contribution margin ratio

= 1000200/10

= $ 100,020

Hence break-even point in dollars for 2019 is $100,020.

(2)

Alternative - 1

Particulars Amount
Sales    1,875,000.00 75000 units * {(1500000/75000)*125%}= 75000*25
Less: Variable expenses        750,000.00
Contribution    1,125,000.00
Less: Fixed Expenses    1,000,200.00
       124,800.00

Contribution Margin Ratio= Total contribution/ Total sales units

= 1125000/75000 = 15

Break-even point in dollars=  (Fixed cost) / Contribution margin ratio

= 1000200/15

= $ 66680

Alternative 2

New Fixed expense= 1000200 - old salary + new salary

= 1000200 - 198000 + 37995

= 840,195

new variable expense =750000 + 1500000 *5%

= 750000+75000

= 825000

Income statement as follows:

Particulars Amount
Sales    1,500,000.00
Less: Variable expenses        825,000.00
Contribution        675,000.00
Less: Fixed Expenses        840,195.00
    (165,195.00)

Contribution Margin Ratio= Total contribution/ Total sales units

= 675000 / 75000 = 9

Break-even point in dollars=  (Fixed cost) / Contribution margin ratio

= 840195/ 9

= $93,355

Alternative 3

The structure of costs and expenses in 2020 will be as follows after buying high tech factory machine:

Particulas Total Variable Fixed
COGS    1,080,000.00    540,000.00        540,000.00
selling exp        520,200.00      95,000.00        425,000.00
Adm exp        150,000.00      55,000.00          95,000.00
   1,750,200.00    690,000.00    1,060,000.00

Hence the income statement will be as follows:

Particulars Amount
Sales    1,500,000.00
Less: Variable expenses        690,000.00
Contribution        810,000.00
Less: Fixed Expenses    1,060,000.00
    (250,000.00)

Contribution Margin Ratio= Total contribution/ Total sales units

= 810000 / 75000 = 10.8

Break-even point in dollars=  (Fixed cost) / Contribution margin ratio

= 1060000/10.8

= $98148.15

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