8 ptX Company spent $7,200 on an engineering study that revealed that Product A

Question

8 ptX Company spent $7,200 on an engineering study that revealed that Product A could be manufactured more efficiently. he new process would result in variable cost savings of $0.83 per unit and additional fixed costs of $3,500. Current variable costs per unit are 3.97, and current fixed costs are $11,930. Last year, X Company sold 4,300 units of Product A at a price of 812.76. At what unit sales level would X Company be indifferent between adopting the new process and not adopting it? 1. AO 2,006 BO 2,908 CO 4,217 DO 6,114 EO 8,866 FO 12,856

Explanation / Answer

Selling price = 12.76

Current variable costs = 3.97

Current fixed costs = 11,930

Current contribution margin = 12.76 - 3.97 = 8.79

New variable costs = 3.97 - 0.83 = 3.14

New contribution margin = 12.76 - 3.14 = 9.62

New fixed costs = 11,930 + 3,500 = 15,430

The level of sales is where the net income of both the alternatives is same

8.79 * Sales - 11,930 = 9.62 * Sales - 15,430

0.83 * Sales = 3,500

Sales = 4,217

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