Question

"Kent Manufacturing produces a product that sells for $50.00. Fixed costs are $260,000 and variable costs are $24.00 per unit. Kent 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 the revised break-even point in dollars with the purchase of the new machine"

Answer 1

$ 460,000.00

Step-by-step explanation:

The break-even point==fixed costs/contribution margin

With purchase of a new production machine,total fixed costs would increase by $11,400

new total fixed costs=$260,000+$11,400=$271,400

contribution margin=sale price per unit-variable cost per unit

sale price is $50.00

variable cost=$24.00-$3.50=$20.50

new contribution margin=$50.00-$20.50=$29.50

New break-even point in unit of output=$271,400/$29.50=9,200 units

new break-even point in dollars=9200 *$50=$ 460,000.00