Question

Kent Manufacturing produces a product that sells for $70.00. Fixed costs are $163,200 and variable costs are $28.00 per unit. Kent can buy a new production machine that will increase fixed costs by $8,840 per year, but will decrease variable costs by $5.60 per unit. Compute the revised break-even point in dollars with the purchase of the new machine

Answer 1

$330,846

Step-by-step explanation:

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

= (Fixed cost ) ÷ (Profit volume ratio)

where,

Fixed cost = $163,200 + $8,840

= $ 172,040

And the profit volume ratio would be

= (Contribution margin) ÷ (Sales) × 100

where Contribution margin equal to

= Selling price per unit - variable cost per unit

= $70 - $28 + $5.60

= $36.4

So, the profit volume ratio is

= ($36.40) ÷ ($70)

= 52%

So, the revised break point in dollars is

= ($172,040) ÷ (52%)

= $330,846