Mullis Corp. manufactures DVDs that sell for $5.70. Fixed costs are $29,000 and variable costs are...
Mullis Corp. manufactures DVDs that sell for $5.70. Fixed costs are $29,000 and variable costs are $3.70 per unit. Mullis can buy a newer production machine that will increase fixed costs by $4,350 per year, but will decrease variable costs by $0.30 per unit. What effect would the purchase of the new machine have on Mullis' break-even point in units?
8,772 unit decrease.
2,175 unit increase.
No effect.
1,891 unit decrease.
1,891 unit increase.
Homework Answers
Current:
Contribution margin=Sales-Variable cost
=5.7-3.7=$2 per unit
Breakeven=Fixed expenses/Contribution margin
=29000/2=14500 units
Now:
New variable cost=(3.7-0.3)=$3.4 per unit
Contribution margin=Sales-Variable cost
=(5.7-3.4)=$2.3 per unit
New fixed cost=29000+4350=$33350
Hence new breakeven=33350/2.3
=14500 units
Hence there is No effect.
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