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    Vortex Inc.

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    Vortex Inc. makes sound amplifiers. This is its income statement:

    Revenues (8,400 units)---------$504,000----100%
    Variable Expenses--------------(302,400)---60%
    Contribution Margin------------$201,600----40%
    Fixed Expenses-----------------(140,400)
    Operating Income---------------$61,200

    New technology has been developed that can produce numerous parts of the amplifiers. If the technology is purchased, fixed expenses will increase to $315,000 annually. The production capacity will rise, which is expected to result in a 25% rise in sales volume. The variable expense ratio is estimated to be reduced to half of what it is now.

    (1) Calculate the current contribution margin per unit and break-even point in units.
    (2) Calculate the contribution margin per unit and break-even point in terms of units if the new technology is bought.
    (3) Calculate the operating income assuming that the new technology is bought.
    (4) Should Vortex Inc. purchase the new machine? Why or why not?

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    Solution Preview

    Vortex Inc. makes sound amplifiers. This is its income statement:

    Revenues (8,400 units)---------$504,000----100%
    Variable Expenses--------------(302,400)---60%
    Contribution Margin------------$201,600----40%
    Fixed Expenses-----------------(140,400)
    Operating Income---------------$61,200

    New technology has been developed that can produce numerous parts of the amplifiers. If the technology is purchased, fixed expenses will increase to $315,000 annually. The production capacity will rise, which is expected to ...

    Solution Summary

    This solution is comprised of a detailed explanation to calculate the current contribution margin per unit and break-even point in units.

    $2.19