Question:
Can You Hear Me Now, LLC manufactures and sells a single mobile telephone. Can You Hear is considering upgrading its current manufacturing facilities with more modern equipment. Cost data for the current facility and the upgraded facility at an expected activity level of 4,000 phones is as follows:
|
|
Current
|
Upgraded
|
|
Total Variable Manufacturing Costs
|
$144,000
|
$108,000
|
|
Total Fixed Manufacturing Costs
|
$43,000
|
$160,000
|
|
Total Variable SG&A Costs
|
$10,000
|
$10,000
|
|
Total Fixed SG&A Costs
|
$12,000
|
$12,000
|
The sales price for each phone is $125.
What is the unit breakeven point in the company's current facility?
What is the unit breakeven point if the company upgrades its facility?
At what level of unit sales is the company economically indifferent between remaining in its current facility and upgrading its facility?
If the company expects to sell 1 phone above the indifference point calculated above, it would be more profitable for the company to
- A. remain in the existing facility.
- B. upgrade to the new facility.