Preston Company Is Analyzing Two Alternative Methods of Producing Its

question 49

Essay

Preston Company is analyzing two alternative methods of producing its product.The production manager indicates that variable costs can be reduced 40% by installing a machine that automates production,but fixed costs would increase.Alternative 1 shows costs before installing the machine; Alternative 2 shows costs after the machine is installed.(a)Compute the break-even point in units and dollars for both alternatives.(b)Prepare a forecasted income statement for both alternatives assuming that 30,000 units will be sold.The statements should report sales,total variable costs,contribution margin,fixed costs,income before taxes,income taxes,and net income.Below the income statement,compute the degree of operating leverage.Which alternative would you recommend and why?

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Definitions:

Ionizing Radiation

Radiation with enough energy to remove tightly bound electrons from atoms, thus creating ions and causing molecular damage.

Alpha Decay

A type of radioactive decay in which an atomic nucleus emits an alpha particle (two protons and two neutrons bound together) and transforms into a different element.

Atomic Nucleus

The atomic nucleus is the small, dense region at the center of an atom, composed of protons and neutrons, and is the core where most of an atom's mass is concentrated.

Ionizing Power

The ability of a chemical element or electromagnetic radiation to ionize atoms or molecules by altering their charge through the removal or addition of electrons.