Plainfield Bakers, Inc., manufactures and sells a popular line of fat-free cookies under the name Aunt Mays
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Prepare a contribution-margin income statement for last year.
Calculate the company’s contribution-margin ratio and breakeven point in sales units for last year.
Plainfield’s direct labor rate is going to go up $0.40 a dozen next year. Assuming that the selling price stays at $2.50 a dozen, calculate next year’s contribution margin and breakeven point in sales units.
Plainfield’s management is thinking about automating the production process, a change that would reduce variable costs by $0.60 a dozen but would raise fixed costs by$150,000 a year. If the company undertakes the automation project, how would its contribution margin and breakeven point in sales units be affected?
Assuming that Plainfield does go ahead with the automation project [see requirement (D)], how many dozen cookies would the company have to sell at $2.50 a dozen to earn the same income it earned last year?
What are some of the no financial aspects of the automation decision that Plainfield’s management should consider when deciding whether to embark on the automation project or not?
Contribution Margin
Contribution 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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Related Book For
Introduction to Operations Research
ISBN: 978-1259162985
10th edition
Authors: Frederick S. Hillier, Gerald J. Lieberman
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