SoundPro, Inc.produces amplifiers for electric guitars.The firm's income statement showed the following:
$\begin{array}{ll}
\text { Revenues (16,000 units) } & \$ 960,000&100\% \
\text { Variable expenses } & \underline{(672,000)}&\underline{70\%}\
\text { Contribution margin } & \$ 288,000 \
\text { Fixed expenses } & \underline{(225,000)} \
\text { Operating income } & 63,000 \
\end{array}$ An automated machine has been developed that can produce several components of the amplifiers.If the machine is purchased, fixed expenses will increase to $526,500 per year.The firm's production capacity will increase, which is expected to result in a 10 percent increase in sales volume.It is also estimated that the variable expense ratio will be reduced to half of what it is now.
(a.)Calculate the firm's current contribution margin per unit and breakeven point in units.
(b.)Calculate the firm's contribution margin per unit and breakeven point in terms of units if the new machine is purchased.
(c.)Calculate the firm's operating income assuming that the new machine is purchased.
(d.)Do you believe that management of SoundPro, Inc.should purchase the new machine? Explain your answer.

Question

SoundPro, Inc.produces amplifiers for electric guitars.The firm's income statement showed the following:
 $\begin{array}{ll}
\text { Revenues (16,000 units) } & \$ 960,000&100\% \
\text { Variable expenses } & \underline{(672,000)}&\underline{70\%}\
\text { Contribution margin } & \$ 288,000 \
 \text { Fixed expenses } & \underline{(225,000)} \
 \text { Operating income } & 63,000 \
\end{array}$ An automated machine has been developed that can produce several components of the amplifiers.If the machine is purchased, fixed expenses will increase to $526,500 per year.The firm's production capacity will increase, which is expected to result in a 10 percent increase in sales volume.It is also estimated that the variable expense ratio will be reduced to half of what it is now.
(a.)Calculate the firm's current contribution margin per unit and breakeven point in units.
(b.)Calculate the firm's contribution margin per unit and breakeven point in terms of units if the new machine is purchased.
(c.)Calculate the firm's operating income assuming that the new machine is purchased.
(d.)Do you believe that management of SoundPro, Inc.should purchase the new machine? Explain your answer.

Quizplus · Accepted Answer

The Answer of SoundPro, Inc.produces amplifiers for electric guitars.The firm's income statement showed the following:
 $\begin{array}{ll}
\text { Revenues (16,000 units) } & \$ 960,000&100\% \
\text { Variable expenses } & \underline{(672,000)}&\underline{70\%}\
\text { Contribution margin } & \$ 288,000 \
 \text { Fixed expenses } & \underline{(225,000)} \
 \text { Operating income } & 63,000 \
\end{array}$ An automated machine has been developed that can produce several components of the amplifiers.If the machine is purchased, fixed expenses will increase to $526,500 per year.The firm's production capacity will increase, which is expected to result in a 10 percent increase in sales volume.It is also estimated that the variable expense ratio will be reduced to half of what it is now.
(a.)Calculate the firm's current contribution margin per unit and breakeven point in units.
(b.)Calculate the firm's contribution margin per unit and breakeven point in terms of units if the new machine is purchased.
(c.)Calculate the firm's operating income assuming that the new machine is purchased.
(d.)Do you believe that management of SoundPro, Inc.should purchase the new machine? Explain your answer.

SoundPro, Inc An Automated Machine Has Been Developed That Can Produce Several