Maya Company manufactures a product which sells for $20 each. Each unit of product has a...
Maya Company manufactures a product which sells for $20 each. Each unit of product has a variable cost of $5 to manufacture. Fixed costs normally incurred are $60,000. Maya Company is considering automating the manufacturing process, which would require a capital investment which would increase fixed costs by $30,000. As a result of the automation, variable costs would decrease by 20%. What would the new breakeven level in units be for Maya Company if it decides to automate the manufacturing process?
6,000 units.
5,625 units.
3,750 units.
4,000 units.
Homework Answers
The new breakeven level in units be for Maya Company if it decides to automate the manufacturing process
The revised total fixed cost = $90,000 [$60,000 + $30,000]
The selling price per unit = $20.00 per unit
The Revised variable cost per unit = $4.00 per unit [$5.00 per unit x 80%]
Therefore, the new breakeven level in units = Total fixed costs / Contribution margin per unit
= Total fixed costs / [Selling price per unit – Variable cost per unit]
= $90,000 / [$20.00 per unit - $4.00 per unit]
= $90,000 / $16.00 per unit
= 5,625 units
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