Question

Kent Co. manufactures a product that sells for $68.00. Fixed costs are $363,000 and variable costs are $38.00 per unit. Kent can buy a new production machine that will increase fixed costs by $25,300 per year, but will decrease variable costs by $5.30 per unit. What effect would the purchase of the new machine have on Kent's break-even point in units

Answer 1

With the new machine, the break-even point in units decreases by 1,100 units.

Step-by-step explanation:

Giving the following information:

Selling price= $68

Unitary variable cost= $ 38

Fixed costs= $363,000

With new machine:

Selling price= $68

Unitary variable cost= $32.7

Fixed costs= $388,300

We need to calculate the break-even point in units with and without the machine. We will use the following formula:

Break-even point in units= fixed costs/ contribution margin per unit

Before the new machine:

Break-even point in units= 363,000/ (68 - 38)

Break-even point in units= 12,100 units

After the machine:

Break-even point in units= 388,300/ (68- 32.7)

Break-even point in units= 11,000 units

With the new machine, the break-even point in units decreases by 1,100 units.