Question

Eaton Tool Company has fixed costs of $407,400, sells its units for $90, and has variable costs of $48 per unit. a. Compute the break-even point. b. Ms. Eaton comes up with a new plan to cut fixed costs to $320,000. However, more labor will now be required, which will increase variable costs per unit to $51. The sales price will remain at $90. What is the new break-even point

Answer 1

Answer and Explanation:

The computation of the break even point is given below

As we know that

Break even point is

= (Fixed cost) ÷ (Selling price per unit - variable cost per unit)

a. Break even point is

= ($407,400) ÷ ($90 - $48)

= 9,700 units

b. The break even point is

= ($320,000) ÷ ($90 - $51)

= 8,205 units