An automated machine has been developed that can produce several components of the amplifiers. If the machine is purchased, fixed expenses will increase to $315,000 per year. The firm's production capacity will increase, which is expected to result in a 25 percent increase in sales volume. It is also estimated that the variable expense ratio will be reduced to half of what it is now.

(a.) Calculate the firm's current contribution margin per unit and break-even point in units.
(b.) Calculate the firm's contribution margin per unit and break-even point in terms of units if the new machine is purchased.
(c.) Calculate the firm's operating income assuming that the new machine is purchased.

Solution Preview

Break even point
Brazen, Inc. produces sound amplifiers for electric guitars. The firm's income statement showed the following:

Sales $450,000.00
Cost of goods sold $200,000.00
Gross margin $250,000.00
Other operating expenses $196,000.00
Operating income $54,000.00
$50,000 of cost of goods sold and $166,000 of operating expenses is fixed.

The LJB Company contributionincome statement for the most recent month is presented below:
See attached word doc for figures
Compute the company's contributionmarginpercentage and break-even point in both units and dollars.

Total fixed costs $500,000.00
Unit variable costs $50.95
Unit selling price $68.50
a. Compute the contributionmarginper unit
b. Compute the contribution-margin ratio
c. Compute the break-even point in units
d. Compute the break-even volume in dollars

Sales (30,000 basket balls at $50) 1,500,000
less Variable Expenses 900,000
Contributionmargin 600,000
Less fixed Expenses 280,000
Net income 320,000
Compute the company's contributionmarginpercentage and break even point in both units and

Sales ( 30,000 caps @ $50)- 1,500,000
Less vairable expenses- 900000
contributionmargin- 600000
less fixed expenses- 280000
net income- 320000
Find the contributionmargin and the break even point in both units and dollars.

Thorpe Corporation sells products for $15 each that have variable costs of $10 per unit. Thorpe's annual fixed cost is $300,000.
User the per unit contributionmargin approach to determine the break-even point in units and dollars.

(Break-even point) You are a hard-working analyst in the office of financial operations for a manufacturing firm that produces a single product. You have developed the following cost structure information for this company. All of it pertains to an output level of 10 million units. Using this information, find the break-even poin

Farrell Company manufactures a product that sells for $50 per unit. Farrell incurs a variable cost per unit of $30 and $3,400,000 in total fixed costs to produce this product. They are currently selling 200,000 units.
Instructions: Complete each of the following requirements, presenting labeled supporting computations.
(a)

Prepare a contributionmargin (behavioral, variable) income statement for Herrestad Company, compare net operating profit from a contributionmarginincome statement with net income from an absorption income statement, and explain why this difference happens. Prepare a second version assuming the selling price per unit increases

For the current year ending April 30, Phillip Company expects fixed costs of $70,000, a unit variable cost of $60, and a unit selling price of $95.
(a) Compute the anticipated break-even sales (units).
(b) Compute the sales (units) required to realize an operating profit of $8,000.