Midlands Inc. had a bad year in 2019. For the first time in its history, it operated at a loss. The company's income statement showed the following results from selling 75,000 units of product: net sales $1,500,000; total 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 $1,240,000 $755,000 $489,000
Selling expenses 515,000 90,000 425,000
Administrative expenses 145,000 55,000 90,000
$1,900,000 $900,000 $1,000,000
Management is considering the following independent alternatives for 2020.
1. Increase unit selling price 20% with no change in costs and expenses.
2. Change the compensation of salespersons from fixed annual salaries totaling $195,000 to total salaries of $35,000 plus a 5% commission on set 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 2019.
(b) Compute the break-even point in dollars under each of the alternative courses of action for 2020.
Break-even point
1. Increase selling price $
2. Change compensation $
3. Purchase machinery $