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P$6\mathrm{.}1$A $($LO $1),$ AN 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 $80,000$ units of product: net sales $$2,000,000$; total costs and expenses $$2,235,000$; and net loss $$235,000.$ Costs and expenses consisted of the following.

Compute break$-$even point under alternative courses of action.

Total

Variable

Fixed

Cost of goods sold

$$1,568,000$

$$1,050,000$

$$1,518,000$

Selling expenses

$517,000$

$92,000$

$425,000$

Administrative expenses

$$2,150,000$

$$1,258,000$

$$1,292,000$

$$2,235,000$

$$1,200,000$

$$1,035,000$

Management is considering the following independent alternatives for $2020.$

$1.$ Increase unit selling price $25\%$ with no change in costs and expenses.

$2.$ Change the compensation of salespersons from fixed annual salaries totaling $$200,000$ to total salaries of $$40,000$ plus a $5\%$ 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 $50$:$50.$

Instructions

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 $2020.($Round to the nearest dollar.$)$ Which course of action do you recommend?

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