edugen wileyplusc No resultsOptions Retum to Blackboard Weygandt, Hanagerial Acc
ID: 2409602 • Letter: E
Question
edugen wileyplusc No resultsOptions Retum to Blackboard Weygandt, Hanagerial Accounting. 7e Problem 6-1A Midands Inc. had a bad year in 2016. For the first time in its history, it operated at a loss. The costs and expenses $1,936,000; and net loss $404,000. C domp s income statement sha ed the following results from sein 7? 000 units of product: net sales $2.340,000; tota Costs and expenses consisted of the following Total Variable Cost of goods sold Selling expenses $1.260,000 $785,000 93,000 $475,000 30,000 95,000 $1,000,000 523,000 1.936.000 Management is considering the following independent alternatives for 2017 l. Increase unit selling price 30% with no change in costs and expenses Change the compensation of salespersons from fxed annual salanies 3. Purchase new PO-tech factory machirery that w? change the proporton between vanable s totaling $199,000 to total salaries of $4%,000 plusa5% commission on net sales. d hed at d goods sold to Sosa. 2016 (Round contribution margin rato to 2 decimal places e-q.0.25 and inal answer to o decimal places, e.g. 2,310.) (b) Compute the break -even poent in dollars under each of the aternative courses of action for 2017, (Round contriboution margin ratio to for 2017.nd decimal places e-g-0.2312 and finat answers to o declimal places.g Blreak even point 1. Increase selling price a. Change camgensation a. Purchase machinery id-asnmt2234157N10019 6/12/2018Explanation / Answer
Solution a:
Existing selling price per unit = $2,340,000 / 78000 = $30 per unit
Variable cost per unti = $936,000 / 78000 = $12 per unit
Contribution margin per unit = $30 - $12 = $18 per unit
Contribution margin ratio = $18 / $30 = 60%
Fixed cost = $1,000,000
Breakeven sales = Fixed cost / contribution margin ratio = $1,000,000 / 60% = $1,666,667
Solution b1:
If selling price increased by 30% then revised selling price = $30 * 130% = $39
new contribution margin = $39 - $12 = $27
New contribution margin ratio = $27 / $39 = 69.2307%
Breakeven sales in dollars = $1,000,000 / 69.2307% = $1,444,446
Solution b2:
New fixed cost after changing compensation of sales person = $1,000,000 - $199,000 + $45,000 = $846,000
New variable cost per unit = $12 + ($30 * 5%) = $13.50
New contribution margin = $30 - $13.50 = $16.50
Contribution margin ratio = $16.50 / $30 = 55%
New break even point in dollar sales = $846,000 / 55% = $1,538,182
Solution b3:
New fixed variable cost of goods sold = $1,260,000 * 50% = $630,000
New total variable cost = $630,000 + $93,000 + $58,000 = $781,000
New contribution margin = $2,340,000 - $781,000 = $1,559,000
Contribution margin ratio = $1,559,000 / $2,340,000 = 66.6239%
New fixed cost = $630,000 + $430,000 + $95,000 = $1,155,000
Breakeven point in dollar sales = $1,155,000/ 66.6239% = $1,733,612
Breakeven point is lowest in scenario b-1, therefore increase in unit selling price by 30% is recommended.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.