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Question(s) / Instruction(s):

ABC sold 20,250 units of its only product and incurred a $47,500 loss (ignoring taxes) for the current year as shown here.  During a planning session for year 2010’s activities, the production manager notes that variable costs can be reduced 50% by installing a machine that automates several operations. To obtain these savings, the company must increase its annual fixed costs by $205,000. The maximum output capacity of the company is 40,500 units per year.

ABC COMPANY

                 Contribution Margin Income Statement

                 For Year Ended December 31, 2009

Sales                                                      $1,012,500

Variable costs                                    810,000

Contribution margin                       202,500

Fixed costs                                          250,000

Net loss                                                                $(47,500)

 

     Compute the predicted break-even point in dollar sales for year 2010 assuming the machine is installed and there is no change in unit sales price.

 

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