Holly Inc. manufactures Cell phones. Last year Holly sold 30,000 phones at $80 each. Total costs amounted to $1,800,000 of which $600,000 were considered fixed. In an attempt to improve its product, the company is considering replacing a component part that has a cost of $16 with a new and better part costing $26 per unit in the coming year. A new machine would also be needed to increase plant capacity. The machine would cost $100,000 with a useful life of five years and a $20,000 salvage value. The company uses straight-line depreciation on all plant assets. (Ignore company tax.)
Required:
Calculate in units, Innovation's break-even point for last year. (10 marks)
Calculate the number of units that the company would have had to sell in the last year to earn $ 200,000. Prove your answer. (10 marks)
If Holly increases the selling price by $20, and purchases the new part and the new machine, calculate the new contribution margin , the new fixed cost & the number of units that the company will have to sell to make the same net income as last year. (20 marks).

Answer rating: 100% (QA)

Lets break this down step by step Calculate the breakeven point for last year Breakeven point in units Fixed Costs Selling Price per Unit Variable Cos... View the full answer