We were unable to transcribe this image9) New Plant? Because TrueBeat's capacity is limited to 8,000...

Question:

We were unable to transcribe this image
9) New Plant? Because TrueBeat's capacity is limited to 8,000 units in their current production facility, management would like to explore the impact of building a new production facility. The company is considering a new production facility and equipment that will decrease their variable expenses by 30% but increase fixed expenses by 50%. TrueBeat still plans to produce and sell the same number of units in Year 4 (base). The new plant will give them a relevant range of 5,000 to 12,000 units. a) If the new production facility is built, what would be the company's new () contribution margin per unit, (ii) fixed expenses and (iii) the new profit formula? Complete the table below. 5 i) New CM per unit ii) New Fixed expenses iii) New profit formula + Under New production facility New Break-even New Year 4 6,000 Units Sales Revenue NOI -0- b) Assume TrueBeat sells the same units as planned for Year 4 in the new plant, calculate the new margin of safety in (i) units) (ii) dollars and (iii) percent. i) MoS units ii) MoS dollars iii) MoS percent Has margin of safety improved or declined? Explain/comment in 10 to 30 words. c) Calculate the degree of operating leverage. Has operating leverage improved or declined from the "base" calculation in 9)? Discuss in 10 to 30 words. d) Conclusion: If you were a member of top management, would you have been in favor of constructing the new plant? Explain in 30 to 50 words

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