Answer:
Automated
Sales (19,500 units at $30 per unit) $585,000 $585,000
Variable expenses 409,500 351,000
Contribution margin 175,500 234,000
Fixed expenses 180,000 252,000
Net operating loss $(4,500) $( 18,000)
New Cm ratio= Contribution Margin/ Sales Revenue
= $ 234,000 $ 585,000 = 0.4
Break-even point in dollars= Fixed Costs/ 1- (variable Cost/ Sales)
= 252,000/ 1- (351,000/ 585,000)
= 252,000/ 1-0.6
= 252,000/0.4= $ 630,000
The resulting $ 630,000 is the break even point at which neither a loss nor a profit is incurred.This can be checked as follows.
Sales $ 630,000
Variable Costs ( 60 % $ 630,000) $ 378,000
Contribution Margin $ 252,000
Less Fixed Expense $ 252,000
Profit 0
Break even point in units = Fixed Costs/ Contribution Margin in units
= $ 252,000/ (30-18)
=$ 252,000/ $ 12= 21,000 units
Two Contribution format Income Statements:
Automated
Sales (26,000 units at $30 per unit) $780,000 $780,000
Variable expenses 546,000 468,000
Contribution margin 234,000 312,000
Fixed expenses 180,000 252,000
Net operating Profit $ 54,000 $ 60,000
Working:
Variable Costs per unit = $ 409500/19500= $ 21
After reduction variable costs = $ 21- $3= $ 18
