Part A

Wilson Company sells lawn ornaments (rocks) with university athletic logos. The selling price of each lawn ornament is $25.00. The variable costs associated with each lawn ornament are $15.00 and the fixed costs for the company are $100,000 per year. Ignore income taxes.

Required

1. How many lawn ornaments does Wilson need to sell in order to break even?
2. Determine the dollar amount of sales that Wilson needs to make to generate a profit of $150,000.
3. Prepare a contribution margin income statement for the year assuming that Wilson sold 25,000 lawn ornaments.
4. Calculate the margin of safety in dollars assuming the company expects sales consistent with selling 25,000 lawn ornaments.
5. The company is considering purchasing a machine to automate the production of lawn ornaments. Fixed costs will increase by $50,000 and variable costs will decrease by $7.50 per lawn ornament. Should the company pursue the purchase of the machine? Show calculations to support your decision.