Newtel Inc. manufactures Cell phones. Last year Newtel sold...
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Newtel Inc. manufactures Cell phones. Last year Newtel sold 30,000 phones at $80 each. Total costs amounted to $1,800,000 of which $600,000 were considered fixed. In an attempt to improve its product, the company is considering replacing a component part that has a cost of $16 with a new and better part costing $26 per unit in the coming year. A new machine would also be needed to increase plant capacity. The machine would cost $100,000 with a useful life of five years and a $20,000 salvage value. The company uses straight-line depreciation on all plant assets. (Ignore company tax.) Required: 1. Calculate in units, Innovation's break-even point for last year. ( 10 marks) 2. Calculate the number of units that the company would have had to sell in the last year to earn $ 200,000. Prove your answer.( 10 marks) 3. If Newtel increases the selling price by $20, and purchases the new part and the new machine, calculate the new contribution margin , the new fixed cost & the number of units that the company will have to sell to make the same net income as last year. ( 20 marks)
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