Question

In: Accounting

Presented below is Oxford Ltd.’s income statement for 20x5: Sales (38980 units) $880708 Variable costs -361902...

Presented below is Oxford Ltd.’s income statement for 20x5:

Sales (38980 units)

$880708

Variable costs

-361902

Contribution Margin

518806

Fixed Expenses

-186587

Operating Income

332219

Income tax expense

-142854

Net Income

$189365


Oxford Ltd. is considering installing a robot on its production line. This would decrease variable costs by $3 per unit and increase fixed costs by $160201.  

If the company installs the robot, what would be the increase (decrease) in the break-even point (in units)? Note: a negative number represents a decrease in the break-even point.

Solutions

Expert Solution

Break even points in units = Fixed cost/Contribution per unit

Contribution per unit = Sale price per unit- Variable cost per unit

Calculation of present break-even point

Selling price per unit (880708/38980) (A)

$22.59

Variable cost per unit = (361902/38980) (B)

$9.28

Contribution per unit (C=A-B)

$13.31

Fixed cost (D)

$186,587

Break-even point in units (E=D/C)

     14,019.04

If the company installs the robot, Break-even point

Selling price per unit (880708/38980) (A)

$22.59

Variable cost per unit = 9.28 -$3 (B)

$6.28

Decrease by $3

Contribution per unit (C=A-B)

$16.31

Fixed cost (186,587+160,201) (D)

$346,788

increases by 160,201

Break-even point in units (E=D/C)

     21,262.89

Ans

Increase in break-even point (in units) after installs the robot (21,262.89-14,019.04)

       7,243.85

ekkarill92 answered 8 months ago
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