ABC is a company that does land surveys and engineering consulting. They have an opportunity to purchase new computer equipment that will allow them to render their drawings and surveys much more quickly. The new equipment will cost them an additional $1,200 per month, but they will be able to increase their sales by 10% per year. Their current annual cost and break-even figures are shown below. Units sold 1,400 Sales proce per unit 225 variable cost per unit 145 fixed costs 52,000 break even (in units) 650 contribution margin ratio 0.36 break even in dollars 146,250 sales 315,000 variable cost 203,000 fixed costs 52,000 net income loss 60,000 What will be the impact on the break-even point if ABC purchases the new computer? A. What will be the impact on net operating income if ABC purchases the new computer? B. What would be your recommendation to ABC regarding this purchase? Current New Computer Units sold Sales price per unit Variable cost per unit Contribution margin per unit Fixed costs Break-even (in units) Break-even (in dollars) Current New Computer Sales Variable costs Contribution margin Fixed costs Net income (loss)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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ABC is a company that does land surveys and engineering consulting. They have an opportunity to purchase new computer equipment that will allow them to render their drawings and surveys much more quickly. The new equipment will cost them an additional $1,200 per month, but they will be able to increase their sales by 10% per year. Their current annual cost and break-even figures are shown below.

Units sold 1,400

Sales proce per unit 225

variable cost per unit 145

fixed costs 52,000

break even (in units) 650

contribution margin ratio 0.36

break even in dollars 146,250

sales 315,000

variable cost 203,000

fixed costs 52,000

net income loss 60,000

What will be the impact on the break-even point if ABC purchases the new computer?

A. What will be the impact on net operating income if ABC purchases the new computer?

B. What would be your recommendation to ABC regarding this purchase?

		Current	New Computer
Units sold
Sales price per unit
Variable cost per unit
Contribution margin per unit
Fixed costs
Break-even (in units)

Break-even (in dollars)



	Current	New Computer
Sales
Variable costs
Contribution margin
Fixed costs
Net income (loss)

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