Midlands Inc. had a bad year in 2016. For the first time in its history, it...

 

Transcribed Image Text:

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 75,000 units of product: net sales $ 1,500,000; total costs and expenses $ 1,750,0003; and net loss $ 250,000. Costs and expenses consisted of the following. Total Variable Fixed Cost of goods sold $ 1,080,000 $600,000 $ 480,000 Selling expenses 520,000 95,000 425,000 Administrative expenses 150,000 55,000 95,000 $ 1,750,000 $750,000 $1,000,000 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 $ 198,000 to total salaries of $ 38,000 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 e.g. 0.25 and final answer to O 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. (Round contribution margin ratio to 4 decimal places e.g. 0.2512 and final answers to 0 decimal places, e.g. 2,510.) Break-even point 1. Increase selling price 2$ 2. Change compensation 2$ 3. Purchase machinery 2$ Which course of action do you recommend? Attempts: 0 of 7 used Check Answer 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 75,000 units of product: net sales $ 1,500,000; total costs and expenses $ 1,750,0003; and net loss $ 250,000. Costs and expenses consisted of the following. Total Variable Fixed Cost of goods sold $ 1,080,000 $600,000 $ 480,000 Selling expenses 520,000 95,000 425,000 Administrative expenses 150,000 55,000 95,000 $ 1,750,000 $750,000 $1,000,000 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 $ 198,000 to total salaries of $ 38,000 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 e.g. 0.25 and final answer to O 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. (Round contribution margin ratio to 4 decimal places e.g. 0.2512 and final answers to 0 decimal places, e.g. 2,510.) Break-even point 1. Increase selling price 2$ 2. Change compensation 2$ 3. Purchase machinery 2$ Which course of action do you recommend? Attempts: 0 of 7 used Check Answer