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Direct Change Based on Accounting

Tutoring:

Trimble Company sells an electronic toy for $40. The variable cost is $24 per unit and the fixed cost is $32,000 per year. Management is considering the following changes:

Alternative #1

Lease a new packaging machine for $4,000 per year, which will reduce variable cost by $1 per unit.

Alternative #2

Increase selling price 10 percent to counteract an expected 25 percent increase in fixed cost.

Alternative #3

Reduce fixed cost by 25 percent by moving to a lower rent location. This would have the effect of increasing variable costs by 10 percent.

Required:

Answer each of the following questions independently, showing your calculations. Also, provide a few sentences explaining your answers:

Determine the current break-even point in units and dollars.
Determine the expected profit assuming alternative #1 and sales of 3,200 units.
Determine the break-even point in units and dollars assuming alternative #2.
Determine the break-even point required in units and dollars assuming alternative #3.
Determine the volume of sales required to earn $23,600 assuming alternative #3.

Solution Preview

Your tutorial shows the formulas and the strategy for completing these, including how the price and costs shift and the resulting contribution margin. See excel, attached. Click in cells to see ...

Solution Summary

Your tutorial shows the formulas and the strategy for completing these, including how the price and costs shift and the resulting contribution margin. See excel, attached. Click in cells to see calculations.

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