Question

H ve Connect - To Do... eBook Calculator Print Item Flanders Manufacturing is considering purchasing a new machine that will reduce variable costs per part produced by $0.15. The machine will increase fred costs by 520,300 per year. The information they will use to consider these changes is shown here. A. What will the impact be on the break-even point if Flanders purchases the new machinery? Round per unit cost answers to two decimal places. Current New Machine 218,000 Units Sold Sales Price Per Unit $2.10 Variable Cost Per Unit $1.70 Contribution Margin Per Unit $0.40 Fixed Costs Break-Even (in units) $60,000 150,000 $315,000 Break-Even (in dollars) $ B. What will the impact be on net operating income if Flanders purchases the new machinery? New Machine Current $457,800 Sales Variable Costs Contribution Margin 370.600 $87,200 69,000 $27,200 Fixed Costs Net Income (Loss) c. What would your recommendation be to Flanders regarding this purchase? a. The new equipment will increase fixed costs substantially but net income will still increase due to the increased variable cost savings, which leads to a higher contribution margin. The machine should be purchased, b. The new equipment will decrease fixed costs substantially and net income will increase due to the increased variable cost savings, which leads to a higher contribution margin. The machine should be purchased Previous Next > Check My Work mal instructor Save and Submit A g ent for Grading All work saved

Answer 1

Calculation A. Calculation of the impact on Break-Even Point. Particulars Current New Machine Units Sold 2,18,000 2,18,000 Sale Price per Unit $ 2.10 $ 2.10 Variable Cost per Unit 1.70 $ 1.55 Contribution Margin per Unit $ 0.40 0.55 No Change Decrease by $ 0.15 Fixed Costs Break-Even Point (In Units) Break-Even Point (In Dollars) 60,000 1,50,000 3,15,000 80,300 Increase by $ 20,300 1,46,000 $ 80,300 / $ 0.55 3,06,600 146,000 Units @ $ 2.10 Break-Even Point (In Units) = Fixed Costs / Contribution Margin per Unit Break-Even Point (In Dollars) = Break-Even Point (In Units) * Sales Price per Unit B. Calculation of the impact on Net Operating Income. Particulars Current New Machine Calculation Sales $ 4,57,800 $ 4,57,800 218,000 Units @ $ 2.10 Less : Variable Costs $ 3,70,600 $ 3,37,900 218,000 Units @ $ 1.55 Contribution Margin | $ 87,200 $ 1,19,900 $ 457,800 - $ 337,900 Less : Fixed Costs $ 60,000 $ 80,300 $ 60,000 + $ 20,300 Net Income / (Loss) 27,200 $ 39,600 $ 119,900 - $ 80,300 By Purchasing a New Machine, which increases the Fixed Expenses by $ 20,300 and decreases the Variable Costs by $ 0.15 per Unit, the Net Operating Income increases by $ 12,400. C. Recommendation be to Flanders regarding this purchase. "Option : A --- The New Equipment will increase the Fixed Costs substantially but Net Income will still increase due to the increased variable cost savings, which leads to higher contribution margin. The Machine should be purchased."