xWaeyPLUS https://edug tijmain.uni Kimmel, Accounting, 6 telp I CALCULATOR Probl
ID: 2552818 • Letter: X
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xWaeyPLUS https://edug tijmain.uni Kimmel, Accounting, 6 telp I CALCULATOR Problem 19-1A 2 Your answer is partisly correct. Try again. Midiands Inc, had a bad year in 2016. For the first sales $1,500,000; total time in its history, it operated at a loss. he company's income statement showed the following results from selling 75,000 units of produt: nem income statement costs and expenses $1,900,000, and net loss $400,000. Costs and expenses consisted of the following Total Variable Fixed Cost of goods sold Seling expenses Administrative expenses 1.245,000 $755,000 $490,000 420,000 90,000 $1,000,000 90,000 5,000 $1,900,000$900,000 10,000 145,000 Management is considering the following independent alternatives for 201 1. Increase unit selling pnca 20% with no change costs and expenses. 2. Change the compensation of salespersons from foxed annual salaries 3. Purchase new high-tech factory machinery that will change the proportion between variable and fixed cost of goods sold to 50:50 annual salaries totaling $195,000 to total salaries of $35,000 plus a 5% commission on net sales. (a) Compute the break-even point in dollars for 2017. (Roand contribution margin ratio to 2 decimal places o.g. o.25 and final answer to 0 decimal places, e.g. 2,51o.) Break-even point 2,sco, (b) Compute the break-even port in dollars under each of the alternative courses of action. (Round contribution margin ratio to 4 decimal places ng. 0,2512 and hnal answers to decimai places, eg. 2,510.) Break-even point 1. increase selling price Change compensation Purchase machinery 2. 3. Which course of action do you recommend? LAltemative 1 5 MacBook AirExplanation / Answer
(a)
Contribution margin = Sales - Variable costs
= 1,500,000 - 900,000
= 600,000
Contribution margin ratio = Contribution margin / sales
= 600,000 / 1,500,000
= 40%
Breakeven point = Fixed costs / Contribution margin ratio
= 1,000,000 / 0.4
= 2,500,000
(b)
1.
New sales = 1,500,000 + (1,500,000*20%) = 1,800,000
Contribution margin = Sales - Variable costs
= 1,800,000 - 900,000
= 900,000
Contribution margin ratio = Contribution margin / sales
= 900,000 / 1,800,000
= 50%
Breakeven point = Fixed costs / Contribution margin ratio
= 1,000,000 / 0.5
= 2,000,000
2.
5% comission on sales = 1,500,000 * 5% = 75,000
Total variable costs = 900,000 + 75,000 = 975,000
Total fixed costs = 1,000,000 - 195,000 + 35,000 = 840,000
Contribution margin = Sales - Variable costs
= 1,500,000 - 975,000
= 525,000
Contribution margin ratio = Contribution margin / sales
= 525,000 / 1,500,000
= 35%
Breakeven point = Fixed costs / Contribution margin ratio
= 840,000 / 0.35
= 2,400,000
3.
Total costs = 1,900,000
Variable costs = 1,900,000 * 50% = 950,000
Fixed costs = 1,900,000 * 50% = 950,000
Contribution margin = Sales - Variable costs
= 1,500,000 - 950,000
= 550,000
Contribution margin ratio = Contribution margin / sales
= 550,000 / 1,500,000
= 36.67%
Breakeven point = Fixed costs / Contribution margin ratio
= 950,000 / 36.67%
= 2,590,674
Alternative 1 is recommended as it's Breakeven point is lower
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