Question

Kent Manufacturing produces a product that sells for $50.00 and has variable costs of $24.00 per unit. Fixed costs are $260,000. Kent can buy a new production machine that will increase fixed costs by $11,400 per year, but will decrease variable costs by $3.50 per unit. Compute the revised break-even point in units if the new machine is purchased.

a. 10,000 units.
b. 10,438 units.
c. 9,869 units.
d. 9,200 units.
e. 8,814 units.

Answer 1

d. 9,200 units.

Step-by-step explanation:

The computation is shown below for break-even points in units:

= (Fixed expenses ) ÷ (Contribution margin per unit)

where,

Fixed costs = $260,000 + $11,400 = $271,400

Contribution margin per unit = Selling price per unit - variable cost per unit

= $50 - $20.5

= $29.5

Now put these values to the above formula

So, the units would equal to

= $271,400 ÷ $29.5

= 9,200 units