Question - Apex Manufacturing Corporation is considering a significant shift in the mix of products it manufactures. The costs associated with current and proposed production schedules are shown below by category:
Cost per month Present
Proposed Plant depreciation $52,000 $52,000
Equipment depreciation 28,000 30,000
Raw material 276,000 284,000
Direct labor 312,000 334,000
Manufacturing overhead (excludes depreciation) 801,000 818,000
The proposed production will require a one-time purchase of equipment costing $180,000. No change in selling or administrative cost from their present levels is expected.
Required:
1. What is the minimum amount that revenue would have to increase per month to justify the proposed production schedule? Ignore taxes and the time value of money.
2. What role does depreciation and equipment purchase cost play in this decision?