Flanders Manufacturing is considering purchasing a new machine that will reduce variable costs per part produced by $0.10. The machine will increase fixed costs by $12,250 per year. The information they will use to consider these changes is shown here. A. What will the impact be on the break-even point if Flanders purchases the new machinery? Round per unit cost answers to two decimal places. Current New Machine Units Sold 214,000 fill in the blank 1 Sales Price Per Unit $2.15 $fill in the blank 2 Variable Cost Per Unit $1.70 $fill in the blank 3 Contribution Margin Per Unit $0.45 $fill in the blank 4 Fixed Costs $67,500 $fill in the blank 5 Break-Even (in units) 150,000 fill in the blank 6 Break-Even (in dollars) $322,500 $fill in the blank 7 B. What will the impact be on net operating income if Flanders purchases the new machinery? Current New Machine Sales $460,100 $fill in the blank 8 Variable Costs 363,800 fill in the blank 9 Contribution Margin $96,300 $fill in the blank 10 Fixed Costs 67,500 fill in the blank 11 Net Income (Loss) $28,800 $fill in the blank 12 C. What would your recommendation be to Flanders regarding this purchase? a. The new equipment will increase fixed costs substantially but net income will still increase due to the increased variable cost savings, which leads to a higher contribution margin. The machine should be purchased. b. The new equipment will decrease fixed costs substantially and net income will increase due to the increased variable cost savings, which leads to a higher contribution margin. The machine should be purchased. c. The new equipment will increase fixed costs substantially and net income will decrease due to the decreased variable cost savings, which leads to a lower contribution margin. The machine should not be purchased. d. The new equipment will decrease fixed costs substantially but net income will still decrease due to the decreased variable cost savings, which leads to a lower contribution margin. The machine should not be purchased.

Flanders Manufacturing is considering purchasing a new machine that will reduce variable costs per part produced by $0.10. The machine will increase fixed costs by $12,250 per year. The information they will use to consider these changes is shown here. A. What will the impact be on the break-even point if Flanders purchases the new machinery? Round per unit cost answers to two decimal places. Current New Machine Units Sold 214,000 fill in the blank 1 Sales Price Per Unit $2.15 $fill in the blank 2 Variable Cost Per Unit $1.70 $fill in the blank 3 Contribution Margin Per Unit $0.45 $fill in the blank 4 Fixed Costs $67,500 $fill in the blank 5 Break-Even (in units) 150,000 fill in the blank 6 Break-Even (in dollars) $322,500 $fill in the blank 7 B. What will the impact be on net operating income if Flanders purchases the new machinery? Current New Machine Sales $460,100 $fill in the blank 8 Variable Costs 363,800 fill in the blank 9 Contribution Margin $96,300 $fill in the blank 10 Fixed Costs 67,500 fill in the blank 11 Net Income (Loss) $28,800 $fill in the blank 12 C. What would your recommendation be to Flanders regarding this purchase? a. The new equipment will increase fixed costs substantially but net income will still increase due to the increased variable cost savings, which leads to a higher contribution margin. The machine should be purchased. b. The new equipment will decrease fixed costs substantially and net income will increase due to the increased variable cost savings, which leads to a higher contribution margin. The machine should be purchased. c. The new equipment will increase fixed costs substantially and net income will decrease due to the decreased variable cost savings, which leads to a lower contribution margin. The machine should not be purchased. d. The new equipment will decrease fixed costs substantially but net income will still decrease due to the decreased variable cost savings, which leads to a lower contribution margin. The machine should not be purchased.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section14.A: Breakeven Analysis

Problem 5P

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Question

A. What will the impact be on the break-even point if Flanders purchases the new machinery? Round per unit cost answers to two decimal places.

	Current	New Machine
Units Sold	214,000	fill in the blank 1
Sales Price Per Unit	$2.15	$fill in the blank 2
Variable Cost Per Unit	$1.70	$fill in the blank 3
Contribution Margin Per Unit	$0.45	$fill in the blank 4
Fixed Costs	$67,500	$fill in the blank 5
Break-Even (in units)	150,000	fill in the blank 6
Break-Even (in dollars)	$322,500	$fill in the blank 7

B. What will the impact be on net operating income if Flanders purchases the new machinery?

	Current	New Machine
Sales	$460,100	$fill in the blank 8
Variable Costs	363,800	fill in the blank 9
Contribution Margin	$96,300	$fill in the blank 10
Fixed Costs	67,500	fill in the blank 11
Net Income (Loss)	$28,800	$fill in the blank 12

C. What would your recommendation be to Flanders regarding this purchase?

a. The new equipment will increase fixed costs substantially but net income will still increase due to the increased variable cost savings, which leads to a higher contribution margin. The machine should be purchased.

b. The new equipment will decrease fixed costs substantially and net income will increase due to the increased variable cost savings, which leads to a higher contribution margin. The machine should be purchased.

c. The new equipment will increase fixed costs substantially and net income will decrease due to the decreased variable cost savings, which leads to a lower contribution margin. The machine should not be purchased.

d. The new equipment will decrease fixed costs substantially but net income will still decrease due to the decreased variable cost savings, which leads to a lower contribution margin. The machine should not be purchased.

Flanders Manufacturing is considering purchasing a new machine that will reduce variable costs per part produced by $0.10. The machine will increase fixed costs by
$12,250 per year. The information they will use to consider these changes is shown here.
A. What will the impact be on the break-even point if Flanders purchases the new machinery? Round per unit cost answers to two decimal places.
Current
New Machine
Units Sold
214,000
Sales Price Per Unit
$2.15
2$
Variable Cost Per Unit
$1.70
Contribution Margin Per Unit
$0.45
Fixed Costs
$67,500
2$
Break-Even (in units)
150,000
Break-Even (in dollars)
$322,500
B. What will the impact be on net operating income if Flanders purchases the new machinery?
Current
New Machine
Sales
$460,100
2$
Variable Costs
363,800
Contribution Margin
$96,300
Fixed Costs
67,500
Net Income (Loss)
$28,800
C. What would your recommendation be to Flanders regarding this purchase?
a. The new equipment will increase fixed costs substantially but net income will still increase due to the increased variable cost savings, which leads to a higher
contribution margin. The machine should be purchased.
b. The new equipment will decrease fixed costs substantially and net income will increase due to the increased variable cost savings, which leads to a higher contribution

c. The new equipment will increase fixed costs substantially and net income will decrease due to the decreased variable cost savings, which leads to a lower contribution
margin. The machine should not be purchased.
d. The new equipment will decrease fixed costs substantially but net income will still decrease due to the decreased variable cost savings, which leads to a lower
contribution margin. The machine should not be purchased.

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