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

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 76,000 units of product: net sales $1,520,000; total costs and expenses $1,780,000; and net loss $260,000. Costs and expenses consisted of the following.

TotalvariableFixed
Cost of goods sold 1,117,000$611,000$506,000
Selling expenses514,00093,000421,000
Administrative expenses149,00056,00093,000
1,780,000$760,000$1,020,000

Management is considering the following independent alternatives for 2017.

1. Income unit price 30% with no change in costs and expenses.

2. Change the con position of a salesperson from fixed annual sales totaling $199,000 to total salaries of $36,000 plus a 5% commission on net sales.

3. Purchase new high-tech factory machinery that will change the proportion between the variable and fixed cost of goods sold to 50:50.

(a) Compute the break-even point in dollars for 2016.

(b) Compute the break-even point in dollars under each of the alternatives courses of action for 2017.

Breakeven point

Breakeven point is a measure used in cost analysis. It shows the minimum number of units or minimum amount sales required to recover the entire cost ( fixed as well as variable cost). It extensively used by the cost centres for cost control.

Answer and Explanation: 1

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Part a)

Breakeven point in dollars(BEP$)= (total Fixed cost(F)/contribution per unit(C))*sales price(S)

Where

F= $1020000

C= (net sales - total...

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How to Calculate the Break-Even Point - Definition & Formula

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Chapter 5 / Lesson 28
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See how to calculate break-even point (in units and dollars). See the variables of the break-even point formula and examples. Understand the purpose of break-even analysis.


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