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The following monthly data are available for Odyssey Pty Ltd and its only product, Product Z. In the month of May, Odyssey sold 800 units
The following monthly data are available for Odyssey Pty Ltd and its only product, Product Z. In the month of May, Odyssey sold 800 units of product Z. Its Income Statement for May follows: Sales Revenue Variable expenses Fixed expenses Operating income Total $100,000 48,000 52,000 $ 0 Per Unit $125 60 65 Required: Assume that each requirement is independent 1. Without resorting to calculations, what is the total contribation margin at the breaks leven point? (2 marks) 2. Management wants to automate a part of the production process for Product Z. The new equipment would reduce direct labour costs by $12 per unit but would result in a monthly rental cost for the new robotic equipment of $10,000. Management believes that the new equipment will increase the reliability of Product Z thus resulting in an increase in monthly sales of 30%. Should the change be made? Justify your decision with supporting calculations? (6 marks)
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