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.
| Total | variable | Fixed | |
| Cost of goods sold | 1,117,000 | $611,000 | $506,000 |
| Selling expenses | 514,000 | 93,000 | 421,000 |
| Administrative expenses | 149,000 | 56,000 | 93,000 |
| 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 $36,000 plus a 5% commission on net sales.
3. Purchase new high-tech factory machinery that will change the proportion between the variable and fixed cost of goods sold to 50:50.
(a) Compute the break-even point in dollars for 2016.
(b) Compute the break-even point in dollars under each of the alternatives courses of action for 2017.
Breakeven point
Breakeven point is a measure used in cost analysis. It shows the minimum number of units or minimum amount sales required to recover the entire cost ( fixed as well as variable cost). It extensively used by the cost centres for cost control.
Answer and Explanation: 1
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Breakeven point in dollars(BEP$)= (total Fixed cost(F)/contribution per unit(C))*sales price(S)
Where
F= $1020000
C= (net sales - total...
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