Question

Flanders Manufacturing is considering purchasing a new machine that will reduce variable costs per part produced by $0.10. The machine will increase fixed costs by $12,800 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
Units Sold	217,000
Sales Price Per Unit	$2.15	$
Variable Cost Per Unit	$1.70	$
Contribution Margin Per Unit	$0.45	$
Fixed Costs	$67,500	$
Break-Even (in units)	150,000
Break-Even (in dollars)	$322,500	$

B. What will the impact be on net operating income if Flanders purchases the new machinery?

	Current	New Machine
Sales	$466,550	$
Variable Costs	368,900
Contribution Margin	$97,650	$
Fixed Costs	67,500
Net Income (Loss)	$30,150	$

Answer 1

A.

	Current	New Machine
Units Sold	217,000
Sales Price Per Unit	$2.15	$2.15
Variable Cost Per Unit	$1.70	$1.60
Contribution Margin Per Unit	$0.45	$0.55
Fixed Costs	$67,500	$80,300
Break-Even (in units)	150,000	146,000
Break-Even (in dollars)	$322,500	$313,900

B.

	Current	New Machine
Sales	$466,550	$466,550
Variable Costs	368,900	347,200
Contribution Margin	$97,650	$119,350
Fixed Costs	67,500	80,300
Net Income (Loss)	$30,150	$39,050