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CVP Ananlysis

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

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

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.

I need to find out how to get these three calculations:

(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.

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Solution:

(a.) Calculate the firm's current contribution margin per unit and break-even point in units.
Contribution Margin per unit=(201600)/8400=$24
Break even point (Unit)=Fixed cost/CM per unit=140400/24=5850 units

(b.) Calculate the firm's ...

Solution Summary

Solution describes the steps to calculate contribution margin and breakeven point in both the cases. It also calculates firm's operating income if new machine is purchased.

$2.19