Flanders Manufacturing is considering purchasing a new machine that will reduce variable costs per part produced by $0.15. The machine will increase fixed costs by $18,250 per year. Flanders Manufacturing data Current Units sold 216,000 Sales price per unit $2.15 Variable cost per unit $1.75 Contribution margin per unit $0.40 Fixed costs $56,000 Break-even (in units) 140,000 Break-even (in dollars) $301,000 Sales $464,400 Variable costs $378,000 Contribution margin $86,400 Fixed costs $56,000 Net income (loss) $30,400 A) What will the impact be on the break-even point if Flanders purchases the new machinery? New break-even point in units? New break-even point in dollars? B) What will the impact be on net operating income if Flanders purchases the new machinery? New net income(loss)?
Flanders Manufacturing is considering purchasing a new machine that will reduce variable costs per part produced by $0.15. The machine will increase fixed costs by $18,250 per year.
Flanders Manufacturing data
| Current | |
|---|---|
| Units sold | 216,000 |
| Sales price per unit | $2.15 |
| Variable cost per unit | $1.75 |
| Contribution margin per unit | $0.40 |
| Fixed costs | $56,000 |
| Break-even (in units) | 140,000 |
| Break-even (in dollars) | $301,000 |
| Sales | $464,400 |
| Variable costs | $378,000 |
| Contribution margin | $86,400 |
| Fixed costs | $56,000 |
| Net income (loss) | $30,400 |
A) What will the impact be on the break-even point if Flanders purchases the new machinery? New break-even point in units? New break-even point in dollars?
B) What will the impact be on net operating income if Flanders purchases the new machinery? New net income(loss)?
The Break-even point indicates that total units are to be sold by the business entity to recover its cost of goods sold. It can be calculated by dividing the total fixed cost by the average contribution margin. The net operating income is the difference between contribution and fixed cost.
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