Question

0/1pts Question 7 ABC Company sells its product for $20 a unit. The unit variable expenses are $14 and fixed expenses total $120,000. The company is considering the purchase of an automated machine that will result in a $3 reduction in unit variable costs and an increase of $69,000 in fixed expenses. Which of the following is true about the break-even point in units? They will increase. They willi decrease They will remain unchanged heycanot bedetermined trom the Information grovided Thee willere c d22 DELL

Answer 1

Selling price per unit = $20

Variable cost per unit = $14

Fixed cost = $120,000

Contribution margin per unit = Selling price per unit - Variable cost per unit

= 20-14

= $6

Break even points (in units) = Fixed cost/ Contribution margin per unit

= 120,000/6

= 20,000 units

Due to automated machine variable cost per unit will decrease by $3 and fixed cost will increase by $69,000:

New variable cost per unit = 14-3

= $11

New fixed cost = 120,000+69,000

= $189,000

New Contribution margin per unit = Selling price per unit - New Variable cost per unit

= 20-11

= $9

New break even point ( in units) = New Fixed cost / New contribution margin per unit

= 189,000/9

= 21,000 units

Hence, Break even point will increase.

First option is correct option.

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