Kimmel, Accounting, Ge ish I SystemAnnouncements CALCULATOR PRINTER VERSION BACK

Question

Kimmel, Accounting, Ge ish I SystemAnnouncements CALCULATOR PRINTER VERSION BACK 2] Your answer is partially correct. Try again. Midlands Inc. had a bad year in 2016. For the first time in its history, it operated at a a loss. The company's income statement showed the following results from seling 77,000 units of ; total costs and expenses $1,656,000: and net loss $116.000. Costs and expenses consisted of the following Total Variable Cost of goods sold Selling expenses Administrative expenses $465,000 93,000 58,000 $1,656,000$616,000 $984,000 521,000 151,000 $519,000 428,000 93,000 1,040,000 $616,000 Management is considering the following independent alternatives for 2017 Increase unit selling price 25% with no change in costs and expenses. 2. I. hange the compensation of salespersons from fixed annual salaries totaling $198,000 to total salaries cf $3,000 plus a S% 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 Compute the break even point in dolars for 2017, Round contribution margin ratio to 2 decinal places eo o 25 and final answer todecinal places, e g 2 sio (a Break-even point (b) Compute the break-even point in dollars under each of the alternative courses of action. (Round contribution margin ratio to d decimal places e.g. 0.2512 and final answers to O decimal places, e.g. 2,510.) 1. Increase selling price 2. Change compensation 3. Purchase machinery which course of action do you reconnnend? ernam

Explanation / Answer

In 2016 Sales $ 1540,000 Selling units 77000 units Selling price per unit (1540,000 /77,000 ) $20 per unit Total variable cost   $616,000 Variable cost per unit (616000/77000) = $ 8 per unit Fixed cost = $ 1040,000 Contribution per unit = Selling price- Variable costr per unit = 20-8 = $ 12 per unit CM ratio = Contribution/ selling price *100 = 12/20 *100 = 60% Now in 2017 Break even sales in $ = Totla fixed cost / CM ratio *100 = 1040,000 /60* 100 = $1733,333 Req B: Alternative 1: Increasein Selling price by 25% Revised selling price per unit =20+25% = $25 per unit Variable cost per unit = $ 8 per unit Contribution per unit = 25-8 = $ 17 per unit CM ratio = 17/ 25 *100 = 68% Break even point in $ = Total fixed cost/ CM ratio *100 = 1040,000 /68 *100 = $1529,412 Alternative 2: Change in Remuneration to sales person Revised CM ratio = 60-5% commission on sales = 55% Total fixed cost = 1040,000 -160,000 (Saving in salaries to sales staff) = $880,000 Break even in $ = Total fixed cost / Cm ratio *100 = 880,000 /55*100= $ 1600,000 Alternative:3 change in cost proportion Total cost $ 1656,000 Variable cost is 50% (1656,000*50%) = $828,000 (i.e. 10.75 per unit) Fixed cost is 50% (1656,000*50%) = $828,000 Total contribution = sales - variable cost = 1540,000-828,000 = $712,000 CM ratio = contribution / sales *100 = 712,000/1540,000 *100 = 46.23% Break even sales in $ = Total fixed cost / Cm ratio *100 = 828,000 /46.23*100 = $1791,045

Related Questions

Navigate

• Browse (All)
• Browse K
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.