Lugo$$s Fine Wines is operating at full capacity. Annual revenues are $$50,000,000.$ Total costs are $$45,000,000,$ of which $40\%$ is fixed and $60\%$ is variable. In considering the following scenarios, assume each is independent of the others.

$($a$)$ The company is considering expanding capacity. The additional capacity will add $$10,000,000$ in annual fixed costs. The contribution margin rate will not be impacted. How much in additional sales will be necessary to justify the added capacity?

$($b$)$ Assume a fungus has reduced grape production and increased total variable costs by an additional $10\%$ of sales. Competitive pressures prevent Lugo from raising sales prices. Will the company remain profitable?

$($c$)$ The company is considering automation of certain production processes. Productive capacity will not be increased, but the contribution margin ratio will increase by $5\%$ of sales via a reduction in direct labor. The automated equipment will cost $$5,000,000$ per year to operate. Should the equipment be purchased?

$($d$)$ The company is considering increasing the sales price per unit by $10\%.$ The fixed costs and variable per unit cost will not be affected, but total sales volume $($in units$)$ will be reduced by $10\%.$ Decide whether the company will be more or less profitable if they engage this pricing strategy$(20$ points$)$ Lugo's Fine Wines is operating at full capacity. Annual revenues are

$$50,000,000.$ Total costs are $$45,000,000,$ of which $40\%$ is fixed and $60\%$ is variable. In

considering the following scenarios, assume each is independent of the others.

$($a$)$ The company is considering expanding capacity. The additional capacity will add

$$10,000,000$ in annual fixed costs. The contribution margin rate will not be

impacted. How much in additional sales will be necessary to justify the added

capacity?

$($b$)$ Assume a fungus has reduced grape production and increased total variable costs

by an additional $10\%$ of sales. Competitive pressures prevent Lugo from raising

sales prices. Will the company remain profitable?

$($c$)$ The company is considering automation of certain production processes.

Productive capacity will not be increased, but the contribution margin ratio will

increase by $5\%$ of sales via a reduction in direct labor. The automated equipment

will cost $$5,000,000$ per year to operate. Should the equipment be purchased?

$($d$)$ The company is considering increasing the sales price per unit by $10\%.$ The fixed

costs and variable per unit cost will not be affected, but total sales volume $($in

units$)$ will be reduced by $10\%.$ Decide whether the company will be more or less

profitable if they engage this pricing strategy