Question

Cezanne Industries is planning on purchasing a new piece of equipment that will increase the quality of its production. It hopes the increased quality will generate more sales. The​ company's contribution margin ratio is 50​%, and its current breakeven point is $600,000 in sales revenue. If the​ company's fixed expenses increase by $30,000 due to the​ equipment, what will its new breakeven point be​ (in sales​ revenue)? If Cezanne ​Industries' fixed expenses increase by $30,000 due to the​ equipment, what will its new breakeven point be​ (in sales​ revenue)? Begin by identifying the general formula to compute the breakeven sales in dollars. ( Fixed expenses + Operating income ) ÷ Contribution margin ratio = Breakeven sales in dollars Cezanne will now have to generate of sales revenue to break even.

Answer 1

Cezanne Industries' new breakeven point after an increase of $30,000 in fixed expenses will be $660,000 in sales revenue. This is calculated by adding the increased expenses to the current fixed expenses and dividing by the contribution margin ratio of 50%.

Step-by-step explanation:

The student is asking about the calculation of a new breakeven point for Cezanne Industries after it incurs additional fixed expenses due to the purchase of new equipment.

To calculate the new breakeven point in sales revenue, we use the formula (Fixed expenses + Operating income) ÷ Contribution margin ratio = Breakeven sales in dollars. With the contribution margin ratio being 50%, and the increase in fixed expenses being $30,000, we simply need to add this increase to the current fixed expenses and divide the result by the contribution margin ratio.

First, determine the current fixed expenses by rearranging the current breakeven point calculation: Fixed Expenses = Breakeven Sales × Contribution Margin Ratio. Substituting the known values, we have Fixed Expenses = $600,000 × 50% which equals $300,000.

Now, we add the $30,000 increase in fixed expenses to the current fixed expenses to get $330,000 in total fixed expenses. Using the formula above, the new breakeven point will be ($330,000 + $0) ÷ 0.50 = $660,000.

Therefore, Cezanne Industries will now have to generate $660,000 of sales revenue to break even.

Answer 2

Break-even point (dollars)= $660,000

Step-by-step explanation:

Giving the following information:

The​ company's contribution margin ratio is 50​%

The break-even point is $600,000 in sales revenue.

Fixed expenses increase by $30,000.

To calculate the new break-even point in sales, we need to determine the break-even point for the increase in fixed costs:

Proportional break-even point (dollars)= increase in fixed costs/ contribution margin ratio

Proportional break-even point (dollars)= 30,000/0.5

Proportional break-even point (dollars)= $60,000

New break-even point:

Break-even point (dollars)= 600,000 + 60,000

Break-even point (dollars)= $660,000