Austin Manufacturing had the following operating data for the year just ended. Management plans to improve the quality of its only product by: (1) replacing a component that costs $3.50 with a higher-grade component that costs $5.50;and (2) renting a packing machine for $18,000 a year.If the desired target profit is $288,000,the company must sell:

Question

Austin Manufacturing had the following operating data for the year just ended.  Management plans to improve the quality of its only product by: (1) replacing a component that costs $3.50 with a higher-grade component that costs $5.50;and (2) renting a packing machine for $18,000 a year.If the desired target profit is $288,000,the company must sell:

Quizplus · Accepted Answer

Contribution margin per unit = $60 - $22 - $2* = $36
* increase in variable cost per unit ($5.50 - $3.50)
Break-even point in units = ($504,000 + $18,000 + $288,000) F1F1F1S1F1F1F10 $36
= 22,500 units

Austin Manufacturing Had the Following Operating Data for the Year