The current cost structure for the production department of Performance, Inc., has fixed expenses of $500,000 and variable expenses of $200 per unit.Unit sales volume is 6,000 units.Performance, Inc., can reduce variable expenses to $100 per unit with automated manufacturing technology.What is the new fixed expense amount after automation that will produce the same current operating income on sales volume of 6,000 units?

Question

Quizplus · Accepted Answer

The current operating income is calculated as: (Sales price per unit - $200) * 6,000 - $500,000. To maintain the same operating income with $100 variable cost, the new fixed expenses must be $1,100,000.

The Current Cost Structure for the Production Department of Performance