The following monthly data are available for the Charger Company and its only product, Product AJ: Required: Sales (500 units) Variable expenses Contribution margin Fixed expenses Net income Total $137,500 55,000 $ 82,500 52,800 $ 29,700 Per Unit $275 110 $ 165 a) Without resorting to calculations, what is the total contribution margin at the break-even point? b) Management is contemplating the use of plastic gearing rather than metal gearing in Product SW. This change would reduce variable costs by $15. The company's marketing manager predicts that this would reduce the overall quality of the product and thus would result in a decline in sales to a level of 450 units per month. Should this change be made? c) Assume that Challenger Company is currently selling 500 units of Product SW per month. Management wants to increase sales and feels that this can be done by cutting the selling price by $25 per unit and increasing the advertising budget by $25,000 per month. Management believes that these actions will increase unit sales by 50%. Should these changes be made?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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The following monthly data are available for the Charger Company and its only product,
Product AJ:
Sales (500 units)
Variable expenses
Contribution margin
Fixed expenses
Net income
Total
$137,500
55,000
$ 82,500
52,800
$ 29,700
Per Unit
$ 275
110
$ 165
Required:
a) Without resorting to calculations, what is the total contribution margin at the break-even
point?
essibility: Good to go
b) Management is contemplating the use of plastic gearing rather than metal gearing in
Product SW. This change would reduce variable costs by $15. The company's marketing
manager predicts that this would reduce the overall quality of the product and thus would
result in a decline in sales to a level of 450 units per month. Should this change be made?
c) Assume that Challenger Company is currently selling 500 units of Product SW per month.
Management wants to increase sales and feels that this can be done by cutting the selling
price by $25 per unit and increasing the advertising budget by $25,000 per month.
Management believes that these actions will increase unit sales by 50%. Should these
changes be made?
d) Assume that Challenger Company is currently selling 500 units of Product SW. Management
wants to automate a portion of the production process for Product SW. The new equipment
would reduce direct labour costs by $20 per unit but would result in a monthly rental cost
for the new robotic equipment of $10,000. Management believes that the new equipment
will increase the reliability of Product SW, thus resulting in an increase in monthly sales of
12%. Should these changes be made?
Transcribed Image Text:The following monthly data are available for the Charger Company and its only product, Product AJ: Sales (500 units) Variable expenses Contribution margin Fixed expenses Net income Total $137,500 55,000 $ 82,500 52,800 $ 29,700 Per Unit $ 275 110 $ 165 Required: a) Without resorting to calculations, what is the total contribution margin at the break-even point? essibility: Good to go b) Management is contemplating the use of plastic gearing rather than metal gearing in Product SW. This change would reduce variable costs by $15. The company's marketing manager predicts that this would reduce the overall quality of the product and thus would result in a decline in sales to a level of 450 units per month. Should this change be made? c) Assume that Challenger Company is currently selling 500 units of Product SW per month. Management wants to increase sales and feels that this can be done by cutting the selling price by $25 per unit and increasing the advertising budget by $25,000 per month. Management believes that these actions will increase unit sales by 50%. Should these changes be made? d) Assume that Challenger Company is currently selling 500 units of Product SW. Management wants to automate a portion of the production process for Product SW. The new equipment would reduce direct labour costs by $20 per unit but would result in a monthly rental cost for the new robotic equipment of $10,000. Management believes that the new equipment will increase the reliability of Product SW, thus resulting in an increase in monthly sales of 12%. Should these changes be made?
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