Question

Problem 1: A Fabrication Co. wants to increase capacity by adding a new machine. The fixed costs for machine A are $90,000, and its variable cost is $15 per unit. The revenue is $21 per unit. What is the break-even point for machine A? Show work

A) $90,000 dollars

B) 90,000 units

C) $15,000 dollars

D) 15,000 units

E) 4,286 units

Answer 1

Breakeven point can be calculated using the following formula:

$$ \begin{aligned} \text { Break even point(units) } &=\frac{\text { Total fixed cost }}{\text { price - variable cost }} \\ &=\frac{90,000}{21-15} \\ &=15,000 \text { units } \end{aligned} $$

Hence, option \(\mathrm{D}\) is correct.