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Kent Manufacturing produces a product that sells for $40.00. Fixed costs are $146,000 and variable costs are $14.00 per unit. Kent can buy a new production machine that will increase fixed costs by $10,950 per year, but will decrease variable costs by $3.20 per unit. Compute the revised break-even point in dollars with the purchase of the new machine.

Respuesta :

Answer:

$215,000

Explanation:

The computation of the break even point in dollars is shown below:

= (Fixed cost ) ÷ (Profit volume ratio)

where,  

Fixed cost = $146,000 + $10,950 = $156,950

And the profit volume ratio would be

= (Contribution margin) ÷ (Sales) × 100

where Contribution margin equal to

= Sales - variable cost

= $40 - $14 + $3.20

= $29.20

So, the profit volume ratio is

= ($29.20) ÷ ($40) × 100

= 73%

Now the revised break even point in dollars is

= $156,950 ÷73%

= $215,000

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