Shonda & Shonda is a company that does land surveys and engineering consulting. They have an opportunity to

purchase new computer equipment that will allow them to render their drawings and surveys much more quickly.

The new equipment will cost them an additional $$1,200$ per month, buy they will be able to increase their sales by

$10\%$ per year. Their current annual cost and break$-$even figures are as follows:

What will the impact be on the break$-$even point if the company purchases the new equipment?

What will be the impact on net operating income if Shonda & Shonda purchases the new computer?

Part $1.$

New

Current Computer

Units sold $1,4001,540$

Sales price per unit $$225$

Variable cost per unit

Contribution margin per unit $$225$ $$-$

Fixed costs

Break$-$even $($in units$)-$ #DIV$/0!$

Break$-$even $($in units$)$

Sales price per unit

Break$-$even $($in dollars$)$ $$-$ $$-$

Part $2.$

New

Current Computer

Sales

Variable costs

Contribution margin $$-$ $$-$

Fixed costs

Net income $($loss$)$ $$-$ $$-$

EB$14.$ LO $3\mathrm{.}510$ pts

Company A has current sales of $$4,000,000$ and a $45\%$ contribution margin. Its fixed costs are $$600,000.$

Company B is a service firm with current service revenue of $$2,800,000$ and a $15\%$ contribution margin.

Company B$\text{'}$s fixed costs are $$375,000.$ Compute the degree of operating leverage for both companies.

Company A Company B

Sales

Variable costs

Contribution margin $$-$ $$-$

Fixed costs

Net Income $$-$ $$-$

Operating leverage #DIV$/0!$ #DIV$/0!$

Note: Operating leverage estimates how fast net operating income will grow compared to the sales volume.

EB$15.$ LO $3\mathrm{.}510$ pts

Best Wholesale recently calculated their break$-$even point for their Midwest operations. The national sales manager

has asked them to include a $$10,500$ margin of safety in their calculations. Using the following information, recalculate

Best Wholesale$$s break$-$even point in units and dollars with the $$10,500$ margin of safety included.

Units sold $1,200$

Sales price per unit

Variable cost per unit

Contribution margin per unit $$-$

Fixed costs $+$ margin of safety

Break$-$even $($in units$)$ #DIV$/0!$

Contribution margin ratio #DIV$/0!$

Target margin of safety $($in $$)$ #DIV$/0!$