FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Shonda & Shonda 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 as follows:
Units sold 1,400
Sales price 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 costs $203,000
Fixed costs $52,000
Net Income (loss) $60,000
1. What will be the impact on the break-even point if Shonda & Shonda purchases that new computer?
2. What will be the impact on net operating income if Shonda & Shonda purchases the new computer?
3. What would be your recommendation to Shonda & Shonda regarding this purchase?
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