Reference no: EM132386221

Question

Midlands Inc. had a bad year in 2019. 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 $1,750,200; and net loss $250,200. Costs and expenses consisted of the following.

Total

Variable

Fixed

Cost of goods sold

$1,080,000$600,000$480,000

Selling expenses520,20095,000425,200

Administrative expenses150,00055,00095,000$1,750,200$750,000$1,000,200

Management is considering the following independent alternatives for 2020.

1.Increase unit selling price 25% with no change in costs and expenses.2.Change the compensation of salespersons from fixed annual salaries totaling $198,000 to total salaries of $37,995 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 2019. (Round contribution margin ratio to 4 decimal places e.g. 0.2512 and final answer to 0 decimal places, e.g. 2,510.)

(b) Compute the break-even point in dollars under each of the alternative courses of action for 2020. (Round contribution margin ratio to 3 decimal places e.g. 0.251 and final answers to 0 decimal places, e.g. 2,510.)