Midlands Inc. had a bad year in 2016. For the first time in its history, it operated
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 80,000 units of product: net sales $2,000,000; total costs and expenses $2,235,000; and net loss $235,000. Costs and expenses consisted of the following.
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 sales persons form fixed annual salaries totaling $200,000 to total salaries of $40,000 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.
Instruction
(a) Compute the break - even point in dollars for 2017.
(b) Compute the break - even point in dollars under each of the alternative courses of action. (Round to the nearest dollar.) Which course of action do you recommend?
Step by Step Answer:
Managerial Accounting Tools for Business Decision Making
ISBN: 978-1119036432
7th edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso