Question

I need your support for Part B Only

Zandri Company is considering replacing its existing cutting machine with a new machine that will help reduce its defect rate. Relevant information for the two machines includes the following: Cost Item Existing Machine New Machine Monthly fixed costs $ 28,000 $ 42,000 Variable cost per unit $ 41 $ 36 Sales price per unit $ 52 $ 52 Requirements (a) Determine the sales level, in number of units, at which the costs are the same for both machines. (b) Determine the sales level in dollars at which the use of the new machine results in a 20% profit on sales (profit/sales) ratio. Requirement (a) Determine the sales level, in number of units, at which the costs are the same for both machines Begin by determining the basic formula that is used to determine the units when the costs are the same for both machines. Existing machine cost (Variable cost per unit x Sales units) + Monthly fixed costs New machine cost (Variable cost per unit x Sales units) + Monthly fixed costs = Rearranging the formula you determined above, the number of units where costs for both machines are the same is 2800 units. Requirement (b) Determine the sales level in dollars at which the use of the new machine results in a 20% profit on sales (profit/sales) ratio. Begin by determining the profit formula. (CM ner unit x Sales units ) - Monthly fixed costs = (Sales price ner unit x Sales units ) x Profit percentage Enter your answer in the answer box and then click Check Answer.

Answer 1

Part B New Machine

• Contribution margin per unit = sales-variable cost

          =$52-$36

          =$16

• Profit percentage = 20%
• Monthly fixed costs = $42,000

Formula:

Suppose the number of units are X

(CM per unit*X)-Monthly fixed cost = (Sales price per unit*X)*profit percentage

(16X)-42,000=(52X)*20%

16X-42,000=10.4X

X=42000/5.6

=7500 units

Thus, Sales level in units at which use of new machine results in 20% profit on sales ratio is 7500 units.

sales level in dollars = 7500 units*$52 =$390,000