**Forrester Company Equipment Purchase Analysis**Forrester Company is considering investing in new equipment that will affect their cost structure. The specifics of the changes are as follows:- **Fixed Costs**: Will increase from $120,000 to $150,000 per month.- **Variable Costs**: Will decrease from $70 per unit to $60 per unit.- **Selling Price**: Remains unchanged at $100 per unit.Forrester's current break-even analysis reveals:- **Break-even Sales**: $400,000- **Current Break-even Units**: 4,000 unitsGiven these changes, Forrester will need to re-calculate their break-even point in units to determine the revised value after purchasing the new equipment.**Break-even Analysis Question:**If Forrester purchases this new equipment, the revised break-even point in units would:- Increase by 250.- Decrease by 250.- Increase by 12,000.- Decrease by 8,000.- Increase by 8,000.**Multiple Choice Options:**- Increase by 250.- Decrease by 250.- Increase by 12,000.- Decrease by 8,000.- Increase by 8,000. ### Break-Even Point Calculation Using Weighted-Average Contribution Margin**Problem Statement:**Helpful Hardware sells windows (80% of sales) and doors (20% of sales). The selling price of each window is $400 and of each door is $1,000. The variable cost of each window is $250 and of each door is $700. Fixed costs are $1,440,000. The break-even point in units using the weighted-average contribution margin is:**Multiple Choice:**- ⃝ 3,200 units- ⃝ 8,000 units- ⃝ 12,000 units- ⃝ 6,858 units- ⃝ 5,334 units#### Explanation:To determine the break-even point using the weighted-average contribution margin, follow these steps:1. **Calculate the Contribution Margin for Each Product:** - Contribution margin per window = Selling price per window - Variable cost per window \[ \text{CM (window)} = \$400 - \$250 = \$150 \] - Contribution margin per door = Selling price per door - Variable cost per door \[ \text{CM (door)} = \$1,000 - \$700 = \$300 \]2. **Determine the Sales Mix:** - For windows (80%) - For doors (20%)3. **Calculate the Weighted-Average Contribution Margin:** \[ \text{WACM} = (\text{CM (window)} \times \text{Sales mix (window)}) + (\text{CM (door)} \times \text{Sales mix (door)}) \] Plugging in the values: \[ \text{WACM} = (\$150 \times 0.80) + (\$300 \times 0.20) \] \[ \text{WACM} = \$120 + \$60 = \$180 \]4. **Calculate the Break-Even Point in Units:** \[ \text{Break-even units} = \frac{\text{Fixed costs}}{\text{WACM}} \] Given: \[ \text{Fixed costs} = \$1,440,000 \] \[ \text{WACM} = \$180 \] \[ \text{Break-even units}

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Forrester Company is considering buying new equipment that would increase monthly fixed costs from $120,000 to $150,000 and would decrease the current variable costs of $70 by $10 per unit. The selling price of $100 is not expected to change. Forrester's current break-even sales are $400,000 and current break-even units are 4,000. If Forrester purchases this new equipment, the revised break-even point in units would: Multiple Choice Increase by 250. Decrease by 250. Increase by 12,000. Decrease by 8,000. Increase by 8,000.

Forrester Company is considering buying new equipment that would increase monthly fixed costs from $120,000 to $150,000 and would decrease the current variable costs of $70 by $10 per unit. The selling price of $100 is not expected to change. Forrester's current break-even sales are $400,000 and current break-even units are 4,000. If Forrester purchases this new equipment, the revised break-even point in units would: Multiple Choice Increase by 250. Decrease by 250. Increase by 12,000. Decrease by 8,000. Increase by 8,000.

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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Forrester Company is considering buying new equipment that would increase monthly fixed costs from $240,000 to $270,000 and would decrease the current variable costs of $70 by $10 per unit. The selling price of $120 is not expected to change. Forrester's current break-even sales are $520,000 and current break-even units are 9,000. If Forrester purchases this new equipment, the revised contribution margin ratio would be:
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