Question

Campbell Company currently produces and sells 8,000 units annually of a product that has a variable cost of $14 per unit and annual fixed costs of $293,000. The company currently earns a $83,000 annual profit. Assume that Campbell has the opportunity to invest in new labor-saving production equipment that will enable the company to reduce variable costs to $12 per unit. The investment would cause fixed costs to increase by $9,900 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 Campbell 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 us Sales price per unit Required A Required B >

Answer 1

a) Sales units: 8000 units variable cost = $14 per unil Total variable cost $14 X8000 - $1120 00 Annual fined costs $293000 Profit - $83000 Sale (wit) - variable cost + Annual fixed costs + Pooju $112000 + $ 293000 + $ 83000 8000 x x 2 $ 488000 (x = sp per unit) $488000 2 $61 x = 8000 $61 Sales price per unit b) variable cost $12 per unit 128 8000 - $96000 fined costs = $ 293000 + $ 9900 $ 302900 (when new production investment is purchands CAMPBELL COMPANY Contribution margin $ 488 ooo Sales $ 96ooo Len: variable costs Contribution margin $ 39 2000 income statement "