(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
Chapter3: Cost-volume-profit Analysis
Section: Chapter Questions
Problem 3TP: As a manager, you have to choose between two options for new production equipment. Machine A will...
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Question
![(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](/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:(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
![Cullumber Toys' management is considering eliminating product A, which has been showing a loss for several years. The company's
annual income statement, is as follows:
Sales
Variable expenses
Contribution margin
Advertising expense
Depreciation expense
Corporate expenses
Total fixed expenses
Operating income
A
$2,247,000
1,632,000
$615,000
$517,000
15,900
93,900
$626,800
$(11,800)
B
$1,404,000
600,400
$803,600
$430,000
10,000
81,600
$521,600
$282,000
C
$1,809,300
1,095,200
$714,100
$520,000
20,600
105,000
$645,600
$68,500
Total
$5,460,300
3,327,600
$2,132,700
$1,467,000
46,500
280,500
$1,794,000
$338,700
Advertising expense - Specific to each product.
Depreciation expense - Specific to each product; no other use available, no resale value.
Corporate expenses - Allocated based on number of employees.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fdfd56cfb-7bfc-4b10-8703-50c36abb0228%2F2a8cf95f-8986-48c7-8c91-6f538dbb9666%2Fyynelr9_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Cullumber Toys' management is considering eliminating product A, which has been showing a loss for several years. The company's
annual income statement, is as follows:
Sales
Variable expenses
Contribution margin
Advertising expense
Depreciation expense
Corporate expenses
Total fixed expenses
Operating income
A
$2,247,000
1,632,000
$615,000
$517,000
15,900
93,900
$626,800
$(11,800)
B
$1,404,000
600,400
$803,600
$430,000
10,000
81,600
$521,600
$282,000
C
$1,809,300
1,095,200
$714,100
$520,000
20,600
105,000
$645,600
$68,500
Total
$5,460,300
3,327,600
$2,132,700
$1,467,000
46,500
280,500
$1,794,000
$338,700
Advertising expense - Specific to each product.
Depreciation expense - Specific to each product; no other use available, no resale value.
Corporate expenses - Allocated based on number of employees.
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