Gina's Custom Cabinets specializes in making handcrafted display cabinets. Gina and her staff currently do...
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Gina's Custom Cabinets specializes in making handcrafted display cabinets. Gina and her staff currently do most of their work with hand tools. Since there have been advances in woodworking technology, Gina is considering buying some state-of-the-art machines. Gina believes that these machines will not only reduce the amount of time the craftsmen spend on making cabinets but also would significantly reduce scrap materials.
Under her current cost structure (i.e., without the new machines), Gina estimates that her fixed costs average $36,000 per month and the contribution margin ratio is 40%. If Gina acquires the woodworking machines, then fixed costs would increase to $60,000 per month but the contribution margin ratio would also increase to 55%.
Calculate the sales level at which Gina is indifferent (that is, has the same profit) under both cost structures.
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