Cobb Company currently produces and sells 9,000 units annually of a product that has a variable cost
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Question:
Cobb Company currently produces and sells 9,000 units annually of a product that has a variable cost of $20 per unit and annual fixed costs of $195,000. The company currently earns a $228,000 annual profit. Assume that Cobb has the opportunity to invest in new labor-saving production equipment that will enable the company to reduce variable costs to $16 per unit. The investment would cause fixed costs to increase by $25,000 because of additional depreciation cost.
Required
- Use the equation method to determine the sales price per unit under existing conditions (current equipment is used).
- Prepare a contribution margin income statement, assuming that Cobb invests in the new production equipment.
Related Book For
Fundamental Managerial Accounting Concepts
ISBN: 978-1259569197
8th edition
Authors: Thomas Edmonds, Christopher Edmonds, Bor Yi Tsay, Philip Olds
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