Forrester Company is considering buying new equipment that would increase monthl

Question

Forrester Company is considering buying new equipment that would increase monthly fixed costs from $379,500 to $507,000 and would decrease the current variable costs of $75 by $10 per unit. The selling price of $130 is not expected to change. Forrester's current break-even sales are $897,000 and current break-even units are 6,900. If Forrester purchases this new equipment, the revised contribution margin ratio would be:

Multiple Choice

65%.
40%.
75%.
50%.
10%.

McCoy Brothers manufactures and sells two products, A and Z in the ratio of 4:2. Product A sells for $89; Z sells for $118. Variable costs for product A are $44; for Z $53. Fixed costs are $523,900. Compute the number of units of Product Z McCoy must sell to break even.

Multiple Choice

3,380.

1,457.

6,760.

10,447.

9,885.

Explanation / Answer

1 Revised contribution margin ratio = (130-65)/130 = 50% 2 Weighted contribution margin = (89-44)/6*4+(118-53)/6*2= $51.67 Overall break even = 523900/51.67= 10140 Number of units of Product Z = 10140/6*2= 3380

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