Question

Perez Company currently produces and sells 6,400 units annually of a product that has a variable cost of $9 per unit and annual fixed costs of $311,800. The company currently earns a $85,000 annual profit. Assume that Perez has the opportunity to invest in new labor-saving production equipment that will enable the company to reduce variable costs to $7 per unit. The investment would cause fixed costs to increase by $10,700 because of additional depreciation cost. Required a. Use the equation method to determine the sales price per unit under existing conditions (current equipment is used). b. Prepare a contribution margin income statement, assuming that Perez invests in the new production equipment. Complete this question by entering your answers in the tabs below. Required A Required B Use the equation method to determine the sales price per unit under existing conditions (current equipment is used). Sales price per unit er unit Required A Required B >

Answer 1

Calculation :- 9. Existing conclitions ; Total variable cost = 6400 units X 8 9 per unit ! - 57600 | Net profit - Sales - Jariable cost - Fixed cost 85000 = Sales - 57600 - 311800 Sales - 85000+ 57600+ 318OO = 34.5 4400 sales per unita Total sales Number of unite 454400 6400 =$ 71 per unit Ibo Sales Revenue = $454400 I Vallable cost 6400 unit x $7 Pelunit = 44800 fixed cost = 311200 + 10700 = 322500 Contribution Margin Income statement less Sales Revenue variable cost Contribution margin fixed cost Net Income 454400 44800 409600 322500 3700