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

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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 78,000 units of product; net sales $1,950,000; total costs and expenses $1,795,000; and net loss $-155,000. Costs and expenses consisted of the following.

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 $202,000 to total salaries of $41,000 plus a 5% comminssion 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. computer the break-even point in dollars for 2017.

b. compute the break-even point in dollars under each of the alternative courses of action.

1. Increase selling price $

2. Change compensation $_

3. Purchase machinery $

Which course of action do you recommend?

Break-even point:

A break-even point is a calculation that seeks to find the sales required in order to achieve zero net profit or loss. Break-even point can be calculated in units sold or in revenue dollars. Break-even point is determined by solving the following equation: Sales - Variable Costs - Fixed Costs = $0. It is important to have a strong estimate of fixed and variable costs in order to calculate break-even point.

Answer and Explanation: 1

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Note: Assumptions must be made about the above question. Sales were reported to be $1,950,000, while total costs and expenses were reported to be...

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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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