tpox 5814,000 477,800 Reverues (1,640 units) Fixed expenses Operating income 5 2
ID: 2569234 • Letter: T
Question
tpox 5814,000 477,800 Reverues (1,640 units) Fixed expenses Operating income 5 26,300 An automated stamping machine has been developed that can emcienty produce body trames, hoods, and doors to the desired scale If the machine is leased, fixed expenses will increase by $30,100 per year The trn's producon capacity wil increase, which, is expected to result in a 16% ncrease saes votre it is aso estimated that labor costs of S27 per unt couk, te sved tease es polshing and finishing tme wil be required Required: a. Calculate the hrm's current contrieutien margin ratio and break-even point in terms of revenues (Round your intermediate calcutations to nearest whole number.) 5 750.976 b. Calcutate the irms contrbution margin ratio and break-even point in terms of revenues if the new machine is leased (Round your in Break even point 719 149 c. Cacutate the fm's operating income assuming that the new machine is leased (Round your intermediate per unit costs to nearest whole dollar.) ocoteExplanation / Answer
a.
Current Contribution margin = Sales – Variable costs = $814,000 - $477,800 = $336,200
Current contribution margin ratio = Contribution margin /Sales = $336,200/$814,000 = 0.4130 = 41%
Breakeven point in terms of revenue = Fixed costs/Contribution margin ratio = $307,900/41% = $750,976
b.
Current sales volume = 1,640 units
Revised sales volume = 1,640 units * 1.16 = 1,902 units
Revised sales = $814,000*1.16 = $944,240
Savings in labor costs = $27 * 1,902 units = $51,354
Revised variable costs = ($477,800*1.16) - $51,354 = $502,894
Revised contribution margin = $944,240 - $502,894 = $441,346
Revised contribution margin ratio = $441,346/$944,240 = 0.47 = 47%
Revised fixed costs = $307,900 + $30,100 = $338,000
Breakeven point = $338,000/0.47 = $719,149
c.
Operating income = Contribution margin – Fixed costs = $441,346 - $338,000 = $103,346
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