Question
The statement of income for Dimmell Co. presented below represents the operating results for the fiscal year just ended. Dimmell had sales of 1,800tons of
The statement of income for Dimmell Co. presented below represents the operating results for the fiscal year just ended. Dimmell had sales of 1,800tons of product during the current year. The manufacturing capacity of Dimmell's facilities is 3,000tons of product. Dimmell Co.
Statement of Income
For the Year Ended December 31, Year 2
Sales
$900,000
Variable costs:
Manufacturing
$315,000
Selling costs
180,000
(495,000)
Contribution margin
$405,000
Fixed costs:
Manufacturing
$90,000
Selling
112,500
Administration
45,000
(247,500)
Operating income
$157,500
Income taxes (40%)
(63,000)
Net income
$94,500
Dimmell is considering replacing a highly labor intensive process with an automatic machine. This would result in an increase of $58,500 annually in manufacturing fixed costs. The variable manufacturing costs would decrease $25 per ton. The new breakeven volume in tons would be
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