Question

Momento Camera Company is considering introducing a new video camera. Its selling price is projected to...

Momento Camera Company is considering introducing a new video camera. Its selling price is projected to be $ 1 comma 100 per unit. Variable manufacturing costs are estimated to be $ 550 per unit. Variable selling costs are 5 % of sales dollars. The company expects the annual fixed manufacturing costs for the new camera to be $ 3 comma 465 comma 000. Requirements ?(a) Compute Momento?'s contribution margin per unit and contribution margin ratio. ?(b) Determine the number of units Momento must sell to break even. ?(c) Momento is considering a design modification that would reduce the variable cost of the camera by $ 55 per unit. Explain whether this change will cause Momento?'s breakeven point to increase or? decrease, compared to the initial plans. Requirement? (a) Compute Momento?'s contribution margin per unit and contribution margin ratio. Begin by determining the formula and computing the contribution margin per unit.

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Answer #1
a) Momento's contribution margin per unit =
Per unit $
SP 1000
less VC 550
Contribution 450
contribution margin 45%
b) Break even point in units:
Fixed costs / contribution per unit
3465000 / 450 = 7700 units
c) contribution on reduction of VC by $55:
Per unit $
SP 1000
less VC 495
Contribution 505
contribution margin 50.5%
Break even point in units:
Fixed costs / contribution per unit
3465000 / 505 = 6861.39 units
Reduction of VC will reduce the Break Even Point.
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