Aubergine Company has the following Contribution Margin Format Income Statement for last year, inwhich they sold 10,000 units:Revenues$535,000Variable Costs160,500Contribution Margin$374,500Fixed Costs267,500NOI$107,000a) Find the break-even point in unitsb) If the company has a new ad campaign that increases sales by $50,000 and costs $20,000, what is thechange to net operating income?c) Assume that new equipment reduces the cost per unit by 10% and increases fixed costs by 15%.What is the change to net operating income?d) What is the current margin of safety as a percentage?e) The company developed a new product. The variable costs of the product are $35 per unit and theadditional annual fixed costs are $100,000. Demand is estimated at 2000 units annually. What is thelowest price that the company should charge for the new product?

Answered: a) Find the break-even point in units…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Aubergine Company has the following Contribution Margin Format Income Statement for last year, in
which they sold 10,000 units:
Revenues
$535,000
Variable Costs
160,500
Contribution Margin
$374,500
Fixed Costs
267,500
NOI
$107,000
a) Find the break-even point in units
b) If the company has a new ad campaign that increases sales by $50,000 and costs $20,000, what is the
change to net operating income?
c) Assume that new equipment reduces the cost per unit by 10% and increases fixed costs by 15%.
What is the change to net operating income?
d) What is the current margin of safety as a percentage?
e) The company developed a new product. The variable costs of the product are $35 per unit and the
additional annual fixed costs are $100,000. Demand is estimated at 2000 units annually. What is the
lowest price that the company should charge for the new product?

Expert Solution

Step 1

Hi! Thank you for the question. As per the honor code, We are allowed to answer three sub-parts at a time so we are answering the first three as you have not mentioned which of these you are looking for. Please re-submit the question separately for the remaining sub-parts.

Cost-volume-profit analysis is the method that helps in determining the effects of change in costs and volume on the operating income of the company.

Step 2

a). Break-even point:

Therefore, break-even point is 7,143 units.

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