Wilton Company Is Analyzing Two Alternative Methods of Producing Its

question 42

Essay

Wilton 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:

Bloodstream

The Bloodstream refers to the continuous flow of blood through the circulatory system, delivering nutrients and oxygen to cells and removing waste products.

Somatic Nervous System

The part of the peripheral nervous system that handles voluntary control of body movements through the control of skeletal muscles.

Autonomic Nervous System

Part of the nervous system that controls involuntary body functions, such as heart rate, digestion, and respiration, divided into the sympathetic and parasympathetic nervous systems.

Parasympathetic Nervous System

Part of the autonomic nervous system that conserves energy as it slows the heart rate, increases intestinal and gland activity, and relaxes sphincter muscles.