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Forrester Company is considering buying new equipment that would increase monthly fixed costs from $120,000 to $150,000 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 $400,000 and current break-even units are 4,000. If Forrester purchases this new equipment, the revised break-even point in units would:

User Robinho
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1 Answer

13 votes
13 votes

Answer:

"Decrease by 250" is the appropriate response.

Step-by-step explanation:

The given values are:

Revised fixed cost,

= $150,000

Current selling price,

= $100

Current variable cost,

= $60

Current contribution will be:

=
Current \ selling \ price-Current \ variable \ cost

=
100-60

=
40

Now,

The revised BEP will be:

=
(Revised \ fixed \ cost)/(Revised \ contribution)

On substituting the values, we get

=
(150,000)/(40)

=
3750 \ units

hence,

=
4000-3750

=
250

Thus the above is the correct answer.

User ZenMaster
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3.0k points