a) Tornado Company anticipates fixed costs of $145,000 and variable costs equal
ID: 2452083 • Letter: A
Question
a) Tornado Company anticipates fixed costs of $145,000 and variable costs equal to 50% of sales. What net income before taxes is expected if sales reach $650,000?
b)XYZ Company manufacturers compact disks that sell of $5.00. Fixed costs are $84,000 and variable costs are $2.60 per unit. They can buy a new production machine that will increase fixed costs by $16,800, but variable costs will be decreased by $.40 per unit. What effect would the purchase of the new machine have on XYZ’s break-even point?
Explanation / Answer
a) Sales 650,000
Variable cost (50 % of 650,000) 325,000
Contribution 325,000
Fixed cost 145,000
Net Income 180,000
b) Present break even point
Selling price : 5
variable cost : 2.60
Contribution per unit : (5 - 2.60 ) 2.40
Break even sales : Fixed cost/ contribution per unit
: 84,000/2.40 = 35,000 unit
Purchase of new machine
New Contribution (5 - 2.20) 2.80
Fixed cost :84,000 + 16,800 = 100,800
New break even point (100,800/2.80) = 36,000 unit
Break even sales will increase by 1,000 unit
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.