Question

Forrester Company is considering buying new equipment that would increase monthly fixed costs from $126,000 to $162,000 and would decrease the current variable costs of $70 by $10 per unit. The selling price of $100 is not expected to change. Forrester's current break-even sales are $420,000 and current break-even units are 4,200. If Forrester purchases this new equipment, the revised break-even point in units would:

Answer 1

150 units decrease

Step-by-step explanation:

The computation of the revised break even point in units is shown below:

As we know that

Break even point in units is

= Fixed costs ÷ (Selling price - variable cost)

= $162,000 ÷ ($100 - $60)

= 4,050

And, the Current Break even point is 4,200

So, BEP will reduce by

= 4,200 - 4,050

= 150 units