Brazen, Inc. produces sound amplifiers for electric guitars. The firm's income statement showed the following:
Revenues (8,400 units) $504,000 100%
Variable expenses (302,400) 60%
Contribution margin $201,600 40%
Fixed expenses (140,400)
Operating income $61,200
An automated machine has been developed that can produce several components of the amplifiers. If the machine is purchased, fixed expenses will increase to $315,000 per year. The firm's production capacity will increase, which is expected to result in a 25 percent increase in sales volume. It is also estimated that the variable expense ratio will be reduced to half of what it is now.
I need to find out how to get these three calculations:
Q1. Calculate the firm's current contribution margin per unit and break-even point in units.
Q2. Calculate the firm's contribution margin per unit and break-even point in terms of units if the new machine is purchased.
Q3. Calculate the firm's operating income assuming that the new machine is purchased.