Rex field Corp. is contemplating a huge investment in automated mass spectrometers for its medical laboratory testing services. Its current process relies heavily on the expertise of a high number of lab technicians. The new equipment would employ a computer expert system that integrates much of the decision process and knowledge base that is used by a skilled lab technician.
Rex Field, the company’s CEO, has requested that an analysis of projected results using the old technology versus the new technology be done for the coming year. The accounting department has prepared the following CVP income statements for use in your analysis.
|
Old |
New |
|
|
Sales revenue |
$2,000,000 |
$2,000,000 |
|
Variable costs |
1,400,000 |
600,000 |
|
Contribution margin |
600,000 |
1,400,000 |
|
Fixed costs |
400,000 |
1,200,000 |
|
Net income |
$ 200,000 |
$ 200,000 |