Question: What-if-analysis Jeren Company is considering replacing its existing cutting machine with a new machine that will help reduce its defect rate. Relevant information for the two machines includes the following:
Cost Item Existing Machine New Machine
Monthly fixed costs $32,000 $40,000
Variable cost per unit $44 $40
Sales price per unit $55 $55
a. Determine the sales level, in number of units, at which the costs are the same for both machines.
b. Determine the sales level in dollars at which the use of the new machine results in a 10% profit on sales (profit/sales) ratio.