Reference no: EM132609798

Questions -

Q1. Wellington, Inc., reports the following contribution margin income statement for the month of May. The company has the opportunity to purchase new machinery that will reduce its variable cost per unit by $10 but will increase fixed costs by 20%. Prepare a projected contribution margin income statement for Wellington, Inc., assuming it purchases the new equipment. Assume sales level remains unchanged.

Q2. Karen's Quilts is considering the purchase of a new Long-arm Quilt Machine that will cost $17,500 and will increase her fixed costs by $119. What would happen if she purchased the new quilt machine to realize the variable cost savings of $5.00 per quilt, and what would happen if she raised her price by just $5.00? She feels confident that such a small price increase will not decrease the sales in units that will help her offset the increase in fixed costs. Given the following current prices how would the break-even in units and dollars change? Complete the monthly contribution margin income statement for each of these cases.

Q3. Abilene Industries manufactures and sells three products (XX, YY, and ZZ). The sales price and unit variable cost for the three products are as follows: Their sales mix is reflected as a ratio of 4:2:1. Annual fixed costs shared by the three products are $345,000 per year.

a. What are total variable costs for Abilene with their current product mix?

b. Calculate the number of units of each product that will need to be sold in order for Abilene to break even.

c. What is their break-even point in sales dollars?

d. Using an income statement format, prove that this is the break-even point.