Question

A company produces and sells a single product. The company’s management is evaluating the impact of introducing a new production technology that would reduce variable costs but increase fixed costs. The following information is available:  Current fixed costs: $120,000  Current variable cost per unit: $25  Current sales price per unit: $50  Current annual sales volume: 8,000 units The new technology would increase fixed costs to $180,000 but reduce the variable cost per unit to $20. The sales price per unit and sales volume are expected to remain the same. 1. Calculate the current break-even point in units. 2. Calculate the break-even point in units after introducing the new technology. 3. Determine the impact of the new technology on the break-even point. 4. Calculate the current and new contribution margin ratios. 5. Determine the change in profit if the company continues to sell 8,000 units annually after introducing the new technology.

          A company produces and sells a single product. The company’s management is 
evaluating the impact of introducing a new production technology that would reduce 
variable costs but increase fixed costs. The following information is available:
 Current fixed costs: $120,000
 Current variable cost per unit: $25
 Current sales price per unit: $50
 Current annual sales volume: 8,000 units
The new technology would increase fixed costs to $180,000 but reduce the variable 
cost per unit to $20. The sales price per unit and sales volume are expected to remain 
the same.
1. Calculate the current break-even point in units.
2. Calculate the break-even point in units after introducing the new technology.
3. Determine the impact of the new technology on the break-even point.
4. Calculate the current and new contribution margin ratios.
5. Determine the change in profit if the company continues to sell 8,000 units 
annually after introducing the new technology.

Added by Elizabeth M.

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