Exercise 3-13A (Algo) Conducting sensitivity analysis using the equation method LO 3-5 Stuart Company currently produces and sells 6,700 units annually of a product that has a variable cost of $15 per unit and annual fixed costs of $191,300. The company currently earns a $70,000 annual profit. Assume that Stuart has the opportunity to invest in new labor- saving production equipment that will enable the company to reduce variable costs to $13 per unit. The investment would cause fixed costs to increase by $9,500 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 Stuart invests in the new production equipment. Complete this question by entering your answers in the tabs below. Required A Required B X Answer is not complete. Prepare a contribution margin income statement, assuming that Stuart invests in the new production equipment. STUART COMPANY Contribution margin Income statement hs

Exercise 3-13A (Algo) Conducting sensitivity analysis using the equation method LO 3-5 Stuart Company currently produces and sells 6,700 units annually of a product that has a variable cost of $15 per unit and annual fixed costs of $191,300. The company currently earns a $70,000 annual profit. Assume that Stuart has the opportunity to invest in new labor- saving production equipment that will enable the company to reduce variable costs to $13 per unit. The investment would cause fixed costs to increase by $9,500 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 Stuart invests in the new production equipment. Complete this question by entering your answers in the tabs below. Required A Required B X Answer is not complete. Prepare a contribution margin income statement, assuming that Stuart invests in the new production equipment. STUART COMPANY Contribution margin Income statement hs

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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QUESTION 38 Insourcing incurs an annual fixed cost of $30,000 and a variable cost of $60 per unit. Outsourcing incurs an annual fixed cost of $50,000 and a variable cost of $20 per unit. Using the Make-or-Buy analysis, what is the indifference point between the two alternatives? (Note your answer for question 39) a) 500 units b) 1000 units c) 1500units d) 2000 units e) 800 units QUESTION 39 For the scenario in Q38, anticipated demand is then forecast to be 1000 units. Which option would be most appropriate? a) Insource b) Outsource c) Either option d) Not enough information to evaluate e) None
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Question 4 Ali Limited produces and sells two products. Product A sells for £12 per unit and has a total variable cost of £7.90, while Product B sells for £17 per unit and has a total variable cost of £11.20. For every 4 units of Product A sold, three of product B are sold. Ali Limited fixed costs are £131,850. Budgeted sales revenue is £428,500. Required: a) b) b) Calculate the Break-Even points in Units. Calculate the Margin of Safety in Units. Evaluate the relevance of Break-Even Analysis in decision making process.
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