Question

Mullis Corp. manufactures DVDs that sell for $5.10. Fixed costs are $33,000 and variable costs are $3.60 per unit. Mullis can buy a newer production machine that will increase fixed costs by $17,600 per year, but will decrease variable costs by $0.80 per unit. What effect would the purchase of the new machine have on Mullis' break-even point in units

Answer 1

The break even point in units will changed

Step-by-step explanation:

Calculation to determine What effect would the purchase of the new machine have on Mullis' break-even point in units

First step is to compute the break even point

Break even point

= (Fixed cost) ÷ (Contribution margin per unit)

Where,

Contribution margin per unit = Selling price per unit - Variable expense per unit

Contribution margin per unit= $5.10 - $3.60

Contribution margin per unit= $1.50

And, the fixed cost is $33,000

Hence,the break even point would be

Break even point= ($33,000) ÷ ($5.10 - $3.60)

Break even point= $33,000 ÷ $1.50

Break even point= 22,000 units

Assuming the VARIABLE COST per unit is DECREASED and the FIXED COST is INCREASED the break even would be:

Break even= (Fixed cost) ÷ (Contribution margin per unit)

Where,

Contribution margin per unit = Selling price per unit - Variable expense per unit

Contribution margin per unit = $5.10 - ($3.60-$0.80)

Contribution margin per unit = $5.10 - $2.80

Contribution margin per unit = $2.30

And, the fixed cost =$33,000 + $17,600

Fixed cost = $50,600

So, the break even point would be

= ($50,600) ÷ ($5.10 - $2.30)

= $50,600 ÷ $2.80

= 18,071 units

The break even point in units will changed