Kent Co. manufactures a product that sells for $52.00. Fixed costs are $270,000 and variable costs...

Kent Co. manufactures a product that sells for $52.00. Fixed costs are $270,000 and variable costs are $25.00 per unit. Kent can buy a new production machine that will increase fixed costs by $12,000 per year, but will decrease variable costs by $3.00 per unit. What effect would the purchase of the new machine have on Kent's break-even point in units?

600 unit decrease

5,678 unit increase

No effect on the break-even point in units

6,442 unit decrease

600 unit increase

Solutions

Expert Solution


	Break-even point(old):

	Break-even point in units = Fixed cost / Contribution per unit

	Break-even point in units = $270,000/($52 -$25) per unit = 10000 units

	Break-even point(New)

	Break-even point in units = Fixed cost / Contribution per unit

	Fixed cost = 270,000+12000 = $282000

	Contribution per unit = Sales - Variable costs

	= 52 - (25-3) = $30 per unit

	Break-even point in units = $282000 / $30 per unit = 9400 units

	Change in Break-even point in units = 10000-9400 = 600 units (decrease)

		Therefore option A is correct.

ekkarill92 answered 1 year ago

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