Company XYZ is currently operating with a 60% contribution margin. The company is planning an upgrade in its production facilities,which is expected to increase sales by $15,000O. However, this upgrade is expected to increase fixed costs of $2,500. What would bethe expected change in profit?O a.Decrease by $2,500O b. Increase by $15,000O C.Increase by $12,500O d. Decrease by $6,000O e.Increase by $6,500

Cost-Volume-Profit (CVP) Analysis: It is a method followed to analyze the relationship between the…

Company XYZ is currently operating with a 60% contribution margin. The company is planning an upgrade in its production facilities, which is expected to increase sales by $15,00O. However, this upgrade is expected to increase fixed costs of $2,500. What would be the expected change in profit? O a. Decrease by $2,500 O b. Increase by $15,000 O C. Increase by $12,500 O d. Decrease by $6,000 O e. Increase by $6,500

Company XYZ is currently operating with a 60% contribution margin. The company is planning an upgrade in its production facilities, which is expected to increase sales by $15,00O. However, this upgrade is expected to increase fixed costs of $2,500. What would be the expected change in profit? O a. Decrease by $2,500 O b. Increase by $15,000 O C. Increase by $12,500 O d. Decrease by $6,000 O e. Increase by $6,500

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter3: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 14EB: Company A has current sales of $4,000,000 and a 45% contribution margin. Its fixed costs are...

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Company A has current sales of $4,000,000 and a 45% contribution margin. Its fixed costs are $600,000. Company B is a service firm with current service revenue of $2,800,000 and a 15% contribution margin. Company Bs fixed costs are $375,000. Compute the degree of operating leverage for both companies. Which company will benefit most from a 15% increase in sales? Explain why.
Faldo Company produces a single product. The projected income statement for the coming year, based on sales of 200,000 units, is as follows: Required: 1. Compute the unit contribution margin and the units that must be sold to break even. Suppose that 30,000 units are sold above the break-even point. What is the profit? 2. Compute the contribution margin ratio and the break-even point in dollars. Suppose that revenues are 200,000 greater than expected. What would the total profit be? 3. Compute the margin of safety in sales revenue. 4. Compute the operating leverage. Compute the new profit level if sales are 20 percent higher than expected. 5. How many units must be sold to earn a profit equal to 10 percent of sales? 6. Assume the income tax rate is 40 percent. How many units must be sold to earn an after-tax profit of 180,000?
Gelbart Company manufactures gas grills. Fixed costs amount to 16,335,000 per year. Variable costs per gas grill are 225, and the average price per gas grill is 600. Required: 1. How many gas grills must Gelbart Company sell to break even? 2. If Gelbart Company sells 46,775 gas grills in a year, what is the operating income? 3. If Gelbart Companys variable costs increase to 240 per grill while the price and fixed costs remain unchanged, what is the new break-even point?
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Wellington, Inc., reports the following contribution margin income statement for the month of May. The company has the opportunity to purchase new machinery that will reduce its variable cost per unit by $10 but will increase fixed costs by 20%. Prepare a projected contribution margin income statement for Wellington, Inc., assuming it purchases the new equipment. Assume sales level remains unchanged.
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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. The information they will use to consider these changes is shown here.