Question

mullis corporation manufactures dvds that sell for $5.80. fixed costs are $34,000 and variable costs are $4.20 per unit. mullis can buy a newer production machine that will increase fixed costs by $12,750 per year, but will decrease variable costs by $0.60 per unit. what effect would the purchase of the new machine have on mullis' break-even point in units?

Answer 1

To determine the effect of purchasing the new machine on Mullis Corporation's break-even point in units, we need to compare the current and new cost structure.

Currently:

- Selling price per unit: $5.80

- Fixed costs: $34,000

- Variable costs per unit: $4.20

With the new machine:

- Selling price per unit: $5.80 remains unchanged

- Fixed costs: $34,000 + $12,750 = $46,750 (increase of $12,750)

- Variable costs per unit: $4.20 - $0.60 = $3.60 (decrease of $0.60)

To calculate the break-even point, we use the formula:

Break-even point (in units) = Fixed costs / (Selling price per unit - Variable costs per unit)

1. Current Break-even point:

Break-even point (in units) = $34,000 / ($5.80 - $4.20) = $34,000 / $1.60 = 21,250 units

2. New Break-even point:

Break-even point (in units) = $46,750 / ($5.80 - $3.60) = $46,750 / $2.20 = 21,250 units

Therefore, the purchase of the new machine would not affect Mullis Corporation's break-even point in units.