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Cost-Volume-Profit Wakky Company sells widgets for $55 each. The variable cost per widget is $44.55 and the total fixed cost is $639,100 annually. Current sales
Cost-Volume-Profit Wakky Company sells widgets for $55 each. The variable cost per widget is $44.55 and the total fixed cost is $639,100 annually. Current sales volume is 70,000 widgets. Management is considering the following changes: Alternative #1 Lease a new packaging machine for $20,000 annually which will increase fixed cost but reduce variable cost by $1.10 per widget Alternative #2: Increase selling price by 8% to help offset an expected 30% increase in fixed cost. Alternative #3 Reduce fixed cost by 50% by moving to a lower rent location. This would cause variable cost to increase by 10%. REQUIRED: Considering the current situation and each possible alternative separately from each other, do the following: 1. Complete the grid below for the current level of production and each of the alternatives. For each alternative refer to the current data (round to 3 decimal places if necessary). Current Alternative #1 Alternative #2 Alternative #3 Unit selling price Unit variable cost Unit contribution margin Contribution margin ratio Fixed costs Income 2. Respond to the questions below in the space provided (round answers to a whole number). a) Calculate the income assuming Alternative #1 and sales of 60,000 widgets
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