Question

Lobster Trap Company is considering automating its manufacturing facility. Company information before and after the proposed automation follows:

	Before Automation			After Automation
Sales revenue	$	206,000		$	206,000
Less: Variable cost		96,000			40,000
Contribution margin	$	110,000		$	166,000
Less: Fixed cost		13,000			64,000
Net operating income	$	97,000		$	102,000

Required:
1. Calculate Lobster Trap’s break-even sales dollars before and after automation. (Round your contribution margin ratio to 4 decimal places and final answers to 2 decimal places.)

Answer 1

	CALCULATION OF CONTRIBUTION MARGIN PER UNIT
	PARTICULARS	Before Automation	After Automation
	Sales Revenue	$                 2,06,000.0	$               2,06,000.0
	Less: Variable Cost	$                     96,000.0	$                       40,000
	Contribution Margin	$               1,10,000.00	$             1,66,000.00
	Contribution Margin %	53.3981%	80.5825%
	($ 101 / $ 190) X 100
	CALCULATION OF THE BREAK EVEN POINT IN DOLLARS
		Before Automation	After Automation
	Break Even point =      Fixed Cost / Contribution
	Break Even point =
	Fixed Cost =	$                     1,10,000	$                   1,66,000
	Divide By	"/" By	"/" By
	Contribution Margin %	53.3981%	80.5825%
	Break Even point in Dollars	$               2,06,000.00	$             2,06,000.00
	Answer = Break Even in Dollars =	$               2,06,000.00	$             2,06,000.00