(c) Management is considering making a new product using product A's equipment. If the new product's selling price per unit were $10, its variable costs were $5, and its advertising costs were the same as for product A, how many units of the new product would the company have to sell to make the switch from product A to the new product worthwhile? Units eTextbook and Media
(c) Management is considering making a new product using product A's equipment. If the new product's selling price per unit were $10, its variable costs were $5, and its advertising costs were the same as for product A, how many units of the new product would the company have to sell to make the switch from product A to the new product worthwhile? Units eTextbook and Media
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![**Transcription:**
Management is considering making a new product using product A's equipment. If the new product's selling price per unit were $10, its variable costs were $5, and its advertising costs were the same as for product A, how many units of the new product would the company have to sell to make the switch from product A to the new product worthwhile?
[Units: __________]
**Additional Information:**
This text poses a business problem in break-even analysis for switching production lines. No graphs or diagrams are present in the image.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fdfd56cfb-7bfc-4b10-8703-50c36abb0228%2F2a8cf95f-8986-48c7-8c91-6f538dbb9666%2F82y1jig_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**Transcription:**
Management is considering making a new product using product A's equipment. If the new product's selling price per unit were $10, its variable costs were $5, and its advertising costs were the same as for product A, how many units of the new product would the company have to sell to make the switch from product A to the new product worthwhile?
[Units: __________]
**Additional Information:**
This text poses a business problem in break-even analysis for switching production lines. No graphs or diagrams are present in the image.
Transcribed Image Text:**Cullumber Toys' Income Statement Analysis**
**Overview:**
Cullumber Toys' management is evaluating the potential elimination of Product A due to consistent losses over several years. The financial details from the company's annual income statement are summarized below for products A, B, and C, as well as the overall total.
| Category | A | B | C | Total |
|-------------------------|------------|-----------|-----------|--------------|
| Sales | $2,247,000 | $1,404,000 | $1,809,300 | $5,460,300 |
| Variable Expenses | $1,632,000 | $600,400 | $1,095,200 | $3,327,600 |
| Contribution Margin | $615,000 | $803,600 | $714,100 | $2,132,700 |
| Advertising Expense | $517,000 | $430,000 | $520,000 | $1,467,000 |
| Depreciation Expense | $15,900 | $10,000 | $20,600 | $46,500 |
| Corporate Expenses | $93,900 | $81,600 | $105,000 | $280,500 |
| Total Fixed Expenses | $626,800 | $521,600 | $645,600 | $1,794,000 |
| Operating Income | $(11,800) | $282,000 | $68,500 | $338,700 |
**Notes:**
- **Advertising Expense:** Specific to each product.
- **Depreciation Expense:** Specific to each product with no alternative use or resale value.
- **Corporate Expenses:** Allocated based on the number of employees.
**Analysis:**
- **Product A** shows an operating loss of $11,800.
- **Product B** generates the highest operating income at $282,000.
- **Product C** also shows a positive operating income of $68,500.
- Overall, the total operating income for Cullumber Toys is $338,700.
Management is considering the financial impact of removing Product A, given its consistent losses, to potentially improve overall profitability.
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