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Forrester Company is considering buying new equipment that would increase monthly fixed costs from $276,000 to $544,500 and would decrease the current variable costs of $60 by $15 per unit. The selling price of $100 is not expected to change. Forrester's current break-even sales are $690,000 and current break-even units are 6,900. If Forrester purchases this new equipment, the revised break-even point in dollars would be:

a.$501,818.
b.$690,000.
c.$379,500.
d.$878,182.
e.$990,000.

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Answer:

The correct answer is E.

Explanation:

Giving the following information:

Forrester Company is considering buying new equipment that would increase monthly fixed costs from $276,000 to $544,500 and would decrease the current variable costs of $60 by $15 per unit. The selling price of $100 is not expected to change.

Break-even point (dollars)= fixed costs/ contribution margin ratio

Break-even point (dollars)= 544,500/ [(100-45)/100]

Break-even point (dollars)= $990,000

Answer:

544,500+45x=100x

55x= 544,500

x= 9,900 = new break even point of units

9,900*100= 9,900,00

Ans= e.$990,000.

Explanation:

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