Astro Co. sold 19.700 units of its only product and incurred a $59.290 loss (ign

Question

Astro Co. sold 19.700 units of its only product and incurred a $59.290 loss (ignoring taxes) for the current year as shown here. During a planning session for year 2018's acti s, the production manager notes that variable costs can be 40% by installing a machin e that automates several operations. To obtain these savings, the company must increase its annual fixed costs by $147,000. The maximum output capacity of the company is 40.000 units per year 183,210 2. Compute the predicted break-even point in dollar sales for year 2018 assuming the machine is installed and there is no change Round your answers to 2 decimal pleces)

Explanation / Answer

Ans.

Selling Price = 732840/19700 = $37.20 per unit

Existing Variable cost per unit = 549630/19700 =$27.90

Revised Variable cost after installing machine = $27.90(1-.40) =$16.74

Revised Contribution per unit = Selling price-variable cost

                                                      = 37.20-16.74 = 20.46 per unit

Total fixed cost after installing the machine is = $242500+147000= $389500

Calculation of Break even point after installing the machine = Fixed cost/contribution per unit

                                                                                                            = $389500/20.46 = 19038 units

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