Johns Camera is currently selling cameras at a price of $100. The cameras have a variable cost
Question:
John’s Camera is currently selling cameras at a price of $100. The cameras have a variable cost of $75 per camera and John’s Camera has a total fixed cost of $100,000. John’s Camera is currently selling 5,000 units of cameras. John’s Camera is considering changing its production process. With the change in production, John’s Camera will lower its fixed to $80,000 but raise its variable costs to $90 per unit. Should John’s Camera go forward with the change in production process?
a. Yes, because the new production process lowers fixed costs by $20,000.
b. Yes, because the new production process raises the contribution margin.
c. No, because the new production process leads to a decline in profits by $55,000.
d. No, because the new production process raises the variable costs by $15 per unit.
Contribution MarginContribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...
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