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Forrester Company is considering buying new equipment that would increase monthly fixed costs from $120,000 to $150,000 and would decrease the current variable costs of $70 by $10 per unit. The selling price of $100 is not expected to change. Forrester's current break-even sales are $400,000 and current break-even units are 4,000. If Forrester purchases this new equipment, the revised break-even point in dollars would be:Multiple Choice$375,000.$325,000.$500,000.$400,000.$300,000.

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ayokenny2001

Answer:

$375,000

Explanation:

Selling price = $100

New variable cost per unit = ($70 - $10)

= $60

New fixed cost = $150,000

Therefore, Break even point in dollars

= Fixed costs / Contribution margin ratio,

Where Contribution margin ratio=

{(Selling price per unit - Total variable cost per unit / Selling price per unit)}

= {($100 - $60 / $100)}

= 0.4

= 40%

Break even point in dollars would be;

$150,000 / 0.4

= $375,000

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