KExercise 3-13A (Algo) Conducting sensitivity analysis using the equation method LO 3-5Campbell Company currently produces and sells 7,200 units annually of a product that has a variable cost of $6 per unit and annualfixed costs of $309,600. The company currently earns a $72,000 annual profit. Assume that Campbell has the opportunity to invest innew labor-saving production equipment that will enable the company to reduce variable costs to $4 per unit. The investment wouldcause fixed costs to increase by $9,500 because of additional depreciation cost.Requireda. Use the equation method to determine the sales price per unit under existing conditions (current equipment is used).b. Prepare a contribution margin income statement, assuming that Campbell invests in the new production equipment.Complete this question by entering your answers in the tabs below.Required A Required BUse the equation method to determine the sales price per unit under existing conditions (current equipment is used).Sales priceper unitRequired B > KExercise 3-13A (Algo) Conducting sensitivity analysis using the equation method LO 3-5Campbell Company currently produces and sells 7,200 units annually of a product that has a variable cost of $6 per unit and annualfixed costs of $309,600. The company currently earns a $72,000 annual profit. Assume that Campbell has the opportunity to invest innew labor-saving production equipment that will enable the company to reduce variable costs to $4 per unit. The investment wouldcause fixed costs to increase by $9,500 because of additional depreciation cost.Requireda. Use the equation method to determine the sales price per unit under existing conditions (current equipment is used).b. Prepare a contribution margin income statement, assuming that Campbell invests in the new production equipment.Complete this question by entering your answers in the tabs below.Required A Required BUse the equation method to determine the sales price per unit under existing conditions (current equipment is used).Sales priceper unitRequired B >

There are two types of costs that are incurred by a business. These are fixed costs and variable…

Answered: Campbell Company currently produces and…

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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Gibson Modems has excess production capacity and is considering the possibility of making and selling paging equipment. The following estimates are based on a production and sales volume of 1,800 pagers.Unit-level manufacturing costs are expected to be $28. Sales commissions will be established at $1.80 per unit. The current facility-level costs, including depreciation on manufacturing equipment ($68,000), rent on the manufacturing facility ($58,000), depreciation on the administrative equipment ($14,400), and other fixed administrative expenses ($75,950), will not be affected by the production of the pagers. The chief accountant has decided to allocate the facility-level costs to the existing product (modems) and to the new product (pagers) on the basis of the number of units of product made (i.e., 5,800 modems and 1,800 pagers).Requireda. Determine the per-unit cost of making and selling 1,800 pagers. (Do not round intermediate calculations. Round your answer to 3 decimal places.)
Beacon Company is considering automating its production facility. The initial investment in automation would be $7.52 million, and the equipment has a useful life of 6 years with a residual value of $1,100,000. The company will use straight- line depreciation. Beacon could expect a production increase of 47,000 units per year and a reduction of 20 percent in the labor cost per unit. Production and sales volume Sales revenue Variable costs Direct materials Direct labor Variable manufacturing overhead Total variable manufacturing costs Contribution margin Fixed manufacturing costs Net operating income Required: 1-a. Complete the following table showing the totals. Current (no automation) 81,000 Proposed (automation) 128,000 units units Per Unit $94 $ 17 30 9 56 $38 Total $ ? ? 1,240,000 ? Per Unit $94 $ 17 ? 9 ? $44 Total $ ? ? 2,200,000 ?
Any one of these different product lines can be produced by Bubble Mills, Inc., with the present equipment in one of the divisions. The annual depreciation of the equipment is P6,400; and the annual cost to operate the equipment, regardless of product line manufactured, is P4,600.Product A is expected to yield sales revenue of P71,000 a year with increased costs of production amounting to P42,000. Product B should yield sales revenue of P46,000 a year with increased costs of P15,000. Product C should yield sales revenue of P117,000 with increased costs of P96,000.How much is the sunk costs of the company? choices: P19,600 • P26,000 • P21,400 • P11,000
2 Campbell Company currently produces and sells 7,600 units annually of a product that has a variable cost of $12 per unit and annual fixed costs of $373,000. The company currently earns a $83,000 annual profit. Assume that Campbell has the opportunity to invest in new labor-saving production equipment that will enable the company to reduce variable costs to $10 per unit. The investment would cause fixed costs to increase by $9,300 because of additional depreciation cost. Required a. Use the equation method to determine the sales price per unit under existing conditions (current equipment is used), b. Prepare a contribution margin income statement, assuming that Campbell invests in the new production equipment. Complete this question by entering your answers in the tabs below. Required A Required B Prepare a contribution margin income statement, assuming that Campbell invests in the new production equipment. CAMPBELL COMPANY Contribution margin Income statement Sales Variable costs…
A company is considering replacing an old piece of machinery, which cost $597,100 and has $352,000 of accumulated depreciation to date, with a new machine that has a purchase price of $484,900. The old machine could be sold for $64,000. The annual variable production costs associated with the old machine are estimated to be $155,100 per year for eight years. The annual variable production costs for the new machine are estimated to be $99,700 per year for eight years. a. Prepare a differential analysis dated April 29 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) April 29 Continuewith OldMachine(Alternative 1) ReplaceOldMachine(Alternative 2) DifferentialEffecton Income(Alternative 2) Revenues:…
Bruell Electronics Co. is developing a new product, surge protectors for high-voltage electrical flows. The cost information below relates to the product: Unit Costs Direct materials P 3.25 Direct labor 4.00 Distribution 0.75 The company will also be absorbing P120,000 of additional fixed costs associated with this new product. A corporate fixed charge of P20,000 currently absorbed by other products will be allocated to this new product. Bruell is subject to a tax rate of 30%. How many surge protectors (rounded to the nearest hundred) must Bruell Electronics sell at a selling price of P14 per unit to gain P30,000 additional income after taxes?
Gilberto Company currently manufactures 66,000 units per year of one of its crucial parts. Variable costs are $2.00 per unit, fixed costs related to making this part are $76,000 per year, and allocated fixed costs are $63,000 per year. Allocated fixed costs are unavoidable whether the company makes or buys the part. Gilberto is considering buying the part from a supplier for a quoted price of $3.30 per unit guaranteed for a three-year period. Calculate the total incremental cost of making 66,000 and buying 66,000 units. Should the company continue to manufacture the part, or should it buy the part from the outside supplier
[The following information applies to the questions displayed below.] Astro Co. sold 19,200 units of its only product and incurred a $43,072 loss (ignoring taxes) for the current year, as shown here. During a planning session for year 2020's activities, the production manager notes that variable costs can be reduced 50% by installing a machine that automates several operations. To obtain these savings, the company must increase its annual fixed costs by $142,000. The maximum output capacity of the company is 40,000 units per year. ASTRO COMPANY Contribution Margin Income Statement For Year Ended December 31, 2019 $704,640 563,712 Sales Variable costs Contribution margin Fixed costs 140,928 184,000 Net loss $(43,072) Compute the sales level required in both dollars and units to earn $120,000 of target pretax income in 2020 with the machine stalled and no change in unit sales price. (Do not round intermediate calculations. Round your answers to 2 decimal places. pund "Contribution margin…
A company is considering replacing an old piece of machinery, which cost $168,000 and has $88,000 of accumulated depreciation to date, with a new machine that has a purchase price of $107,900. The old machine could be sold for $90,100. The annual variable production costs associated with the old machine are estimated to be $11,200 per year for 8 years. The annual variable production costs for the new machine are estimated to be $8,000 per year for 8 years. a. Prepare a differential analysis dated April 29 to determine whether to Continue with Old Machine (Alternative 1) or Replace Old Machine (Alternative 2). If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) April 29 Continuewith OldMachine(Alternative 1) ReplaceOldMachine(Alternative 2) DifferentialEffects(Alternative 2) Revenues: Proceeds from sale…
Futura Company purchases 75,000 starters from a supplier at $11.10 per unit that it installs in farm tractors. Due to a reduction in output, the company now has enough idle capacity to produce the starters rather than buying them from the supplier. However, the company's chief engineer is opposed to making the starters because the production cost per unit is $12.20, as shown below: Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead Rent Total product cost Per Unit $ 5.00 3.00 1.80 1.46 2.66 2.40 $ 12. 26 Total $ 135,000 $ 185,000 $ 30,000 If Futura decides to make the starters, a supervisor would be hired (at a salary of $135,000) to oversee production. However, the company has sufficient idle tools and machinery such that no new equipment would have to be purchased. The rent charge above is based on space utilized in the plant. The total rent on the plant is $83.000 per period. Required: What is the financial advantage (disadvantage) of making the…

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