Question

Hardy Co. manufactures a product that sells for $12 per unit. Total fixed costs are $96,000 and variable costs are $7 per unit. Hardy can buy a newer production machine that will increase total fixed costs by $22,800 but variable costs will be decreased by $0.40 per unit. Answer the following (3 points each). A. Current break-even point in units B. New break-even point in units 5. Difference in break-even points in dollars

Answer 1

1 A 2 Fixed costs 3 Selling price per unit 4 Variable cost per unit 5 Contribution margin per unit Current break-even point in units 6 (Fixed costs/Contribution margin per unit) $96.000 $12 $7 19,200 8 B. 9 Fixed costs 10 Selling price per unit 11 Variable cost per unit 12 Contribution margin per unit New break-even point in units 13 (Fixed costs/Contribution margin per unit) $118.800 $12 $6.60 $5.40 22,000 14 15 C. Difference in break-even points in dollars $33,600 Calculations are shown below: B 96000 1 A 2 Fixed costs 3 Selling price per unit 4 Variable cost per unit 5 Contribution margin per unit Current break-even point in units 6 (Fixed costs/Contribution margin per unit) =B3-B4 =B2/B5 8 B. 9 Fixed costs 10 Selling price per unit 11 Variable cost per unit 12 Contribution margin per unit New break-even point in units 13 (Fixed costs/Contribution margin per unit) =B2+22800 =B3 =B4-0.4 =B10-B11 =B9/B12 15 C. Difference in break-even points in dollars =(B13*B10)-(B6*B10)