Belgian Corporation is considering renovating its production facility for its "Western" product. The renovation will increase fixed costs by $3,000 per period, which would double them. The renovation will lower Belgian's variable costs per item produced by $0.50 per unit. The renovation is also expected to improve the product's quality sufficiently to permit Belgian to increase its sales price by $0.50 per unit. The information Belgian will use to consider this change is shown below:

Current

Units sold per period: 4,000

Sales price per unit: $5.00

Variable cost per unit: $3.00

Fixed costs $3,000

Breakeven (units) 1,500

Breakeven (dollars) $7,500

Sales $20,000

Variable Costs $12,000

Contribution Margin $8,000

Fixed Costs $3,000

Net operating income (loss) $5,000

Questions (answer all three):

1. Use the appropriate model(s) from Section 3.3, and modify as needed to include all of the changes noted above. Analyze the decision and show the projected results for each item noted above (and don't forget to calculate contribution margin/unit), if the renovation is undertaken. Show all your work.

2. Advise the Belgian Corporation as to whether it is advisable to undertake the renovation, giving your reasons in detail.

3. What other information would you want to know in advising Belgian Corporation as they make their decision?