Question
[The following information applies to the questions displayed below.] Horton Manufacturing Inc. (HMI) is suffering from the effects of increased local and global competition for
[The following information applies to the questions displayed below.]
Horton Manufacturing Inc. (HMI) is suffering from the effects of increased local and global competition for its main product, a lawn mower that is sold in discount stores throughout the United States. The following table shows the results of HMIs operations for 2019:
Sales (12,500 units @ $84) | $ | 1,050,000 | |
Variable costs (12,500 @ $63) | 787,500 | ||
Contribution margin | $ | 262,500 | |
Fixed costs | 296,100 | ||
Operating profit (loss) | $ | (33,600 | ) |
7. Refer to the original data. During the year, HMI saved $5 of unit variable cost per lawn mower by buying from a different manufacturer. However, changing the plant machinery to accommodate the new part means an additional $50,000 in fixed costs per year. Was this a wise change? Why or why not?
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