Can You Hear Me Now, LLC manufactures and sells a single mobile telephone. Can Y

Question

Can You Hear Me Now, LLC manufactures and sells a single mobile telephone. Can You Hear is considering upgrading its current manufacturing facilities with more modern equipment. Cost data for the current facility and the upgraded facility at an expected activity level of 2,000 phones is as follows Current Total Variable Manufacturing Costs Total Fixed Manufacturing Costs Total Variable SG&A; Costs Total Fixed SG&A; Costs Upgraded $144,000 $108,000 $43,000$160,000 $10,000 $10,000 $12000 $12,000 The sales price for each phone is $125 What is the unit breakeven point in the company's current facility?(enter commas if appropriate) What is the unit breakeven point if the company upgrades its facility?(enter commas if appropriate) At what level o current facility and upgrading its facility?(enter commas if appropriate) f unit sales is the company economically indifferent between remaining in its If the company expects to sell 1 phone above the indifference point calculated above, it would be more profitable for the company to O A. upgrade to the new facility O B. remain in the existing facility.

Explanation / Answer

Answer to Part 1 Calculation of manufacturing cost per phone: Total Manufacturing cost 144000 Expected Activity level 2000 Total Manufacturing cost per phone (144000/2000) 72 Calculation of Total Variable SG&A cost per unit: Total variable SG&A Cost 10000 Expected Activity level 2000 Total variable SG&A Cost per phone (10000/2000) 5 Calculation of Total Variable cost per phone: Total Manufacturing cost per phone (144000/2000) 72 Total variable SG&A Cost per phone (10000/2000) 5 Total Variable cost per phone 77 Calculation of Contribution margin per phone: Selling price per phone 125 Less: Total variable cost per phone -77 Contribution Margin per phone 48 Calculation of Total Fixed Costs: Total fixed manufacturing costs 43000 Total SG&A costs 12000 Total Fixed costs (43000+12000) 55000 Calculation of Break Even Point in company's current facilities Total Fixed costs (43000+12000) 55000 Contribution Margin per phone 48 Break Even Point in company's current facilities (55000/48) 1145.833 Break Even Point in company's current facilities (Rounded off) 1146 Answer to Part 2 Calculation of manufacturing cost per phone: Total Manufacturing cost 108000 Expected Activity level 2000 Total Manufacturing cost per phone (144000/2000) 54 Calculation of Total Variable SG&A cost per unit: Total variable SG&A Cost 10000 Expected Activity level 2000 Total variable SG&A Cost per phone (10000/2000) 5 Calculation of Total Variable cost per phone: Total Manufacturing cost per phone (108000/2000) 54 Total variable SG&A Cost per phone (10000/2000) 5 Total Variable cost per phone 59 Calculation of Contribution margin per phone: Selling price per phone 125 Less: Total variable cost per phone -59 Contribution Margin per phone 66 Calculation of Total Fixed Costs: Total fixed manufacturing costs 160000 Total SG&A costs 12000 Total Fixed costs (160000+12000) 172000 Calculation of Break Even Point in company's current facilities Total Fixed costs (160000+12000) 172000 Contribution Margin per phone 66 Break Even Point in company's current facilities (172000/66) 2606.060606 Break Even Point in company's current facilities (Rounded off) 2606 Answer to Part 3 Change in Fixed Costs (172000-55000) 117000 Change in contribution margin (66-48) 18 Indifferent Point (117000/18) 6500 Answer to Part 4 If the company expects to sell 1 phone above the indifference point, it would be more profitable for the company to UPGRADE TO THE NEW FACILITY.

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