Forrester Company is considering buying new equipment that would increase monthly fixed costs from $123,000 to...
Forrester Company is considering buying new equipment that would increase monthly fixed costs from $123,000 to $187,000 and would decrease the current variable costs of $80 by $25 per unit. The selling price of $110 is not expected to change. Forrester's current break-even sales are $451,000 and current break-even units are 4,100. If Forrester purchases this new equipment, the revised break-even point in units would:
Increase by 700.
Increase by 820.
Increase by 4,920.
Decrease by 820.
Decrease by 700.
Homework Answers
New variable cost=80-25=$55 per unit
Contribution margin=Sales-Variable cost
=(110-55)=$55 per unit
Breakeven=Fixed expenses/Contribution margin
=(187000/55)=3400 units
Hence decrease in break even units
=4100-3400=700 units
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