Question

Winthrop Manufacturing produces a product that sells for $50.00. Fixed costs are $260,000 and variable costs are $24.00 per unit. Winthrop 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 break-even point in units if the new machine is purchased.

Answer 1

See nelow

Step-by-step explanation:

New fixed cost = $260,000 + $11,400 = $271,400

New variable cost = $24 - $3.5 = $20.5

New contribution margin = $50 - $20.5 = $29.5

Break even unit

= Fixed cost / Contribution margin

=$271,400 / 29.5

= 9,200 units

Therefore, break even points in dollars

= Break even unit × Sales per unit

= 9,200 units × $50

= $460,000