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CG ' s main product is a circuit board ( CB 3 6 6 8 ) used in computers with enhanced graphics capabilities. Prices vary
CGs main product is a circuit board CB used in computers with enhanced graphics capabilities. Prices vary depending on the
terms of sale and the size of the purchase; the average price for the CB is $ If the firm is successful, it might be able to raise
prices, but it also might have to reduce the price because of increased competition. The firm expects to sell units in the
coming year, and sales are expected to increase in the following years. The future for CG looks very bright indeed, but the company is
new and has not developed a strong financial base. Cash flow management is a critical feature of the firm's financial management, and
top management must watch cash flow numbers closely.
At present, CG is manufacturing the CB in a plant leased from ElecTech using some equipment purchased from ElecTech. CG
manufactures about percent of the parts in this circuit board.
CG management is considering a significant reengineering project to significantly change the plant and manufacturing process. The
project's objective is to increase the number of purchased parts to about and to reduce the complexity of the manufacturing
process. This would also permit CG to remove some leased equipment and to sell some of the most expensive equipment in the plant.
The perunit manufacturing costs for units of CB follow:
General, selling, and administrative costs are $ variable cost per unit and $ fixed; these costs are not expected to differ for
either the current or the proposed manufacturing plan.
Required
Compute the contribution margin per unit and the breakeven point in units for CB both before and after the proposed
reengineering project. Assume all setup costs are included in fixed overhead.
Determine the number of sales units at which CG would be indifferent as to the current manufacturing plan or the proposed plan.
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