CVP computations. Patel Manufacturing sold 180,000 units of its product for $30 per unit in 2007. Variable cost per unit is $24 and total fixed costs are $960,000.

Required 1. Calculate

(a) contribution margin and

(b) operating income.

2. Patel’s current manufacturing process is labour intensive. Kate $choenen, Patel’s production manager, has proposed investing in state-of-the-art manufacturing equipment, which will increase the annual fixed costs to $3,000,000. The variable costs are expected to decrease to

$12 per unit. Patel expects to maintain the same sales volume and selling price next year.

How would acceptance of Ms. Schoenen’s proposal affect your answers to

(a) and

(b) in requirement 1?

3. Should Patel accept fichoenen’s proposal? Explain.