Question

Benson Company currently produces and sells 6,600 units annually of a product that has a variable cost of $6 per unit and annual fixed costs of $354,600. The company currently earns a $81,000 annual profit. Assume that Benson has the opportunity to invest in new labor-saving production equipment that will enable the company to reduce variable costs to $4 per unit. The investment would cause fixed costs to increase by $9,400 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 Benson 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 Required A Required B

Answer 1

Answer:
1)
Let,Unit Sold = x
Accoring to the equation method,
SP (x)   = VC (x) + Fixed Cost + Profit SP x 6,500 = ( 6,600 x $ 6 ) + $ 354,600 + $ 81,000 SP x 6,600 =    $ 475,200 SP               =   $ 475,200 / 6,600    Sp              =    $ 72
Sales Price    = $ 72 per Unit
2)
BENSON COMPANY Contribution Margin Income Statement
Sales (6,600 units x $ 72 )	$ 475,200
Less: Variable cost             ( 6,600 units x $ 4 )	($ 26,400 )
Contribution Margin	$ 448,800
Less: Fixed cost                ( $ 354,600 + $ 9,400 )	($ 364,000)
Net operating income (or) Net Income	$ 84,800