Question

Shawn penn and pencil sets inc has fixed costs of 80,000, its product currently sells for 5 per unit and has variable costs of 2.50 per unit. Mr. Bic wants to buy new equipment that will cost 400,000 and drive up fixed costs to 120,000. although the price will remain at 5 per unit the increased automation will reduce costs per unit to 2.00. As a result of Bics suggestion will the break even point go up or down? Compute the necessary numbers

Answer 1

Answer:

Assume we sold y units

original break even point:

total cost = profit

80,000 + 2.50y = 5y

80,000 = 2.5y

y = 32,000

New break even point:

total cost = profit

120,000 + 2.00y = 5y

120,000 = 3y

y = 40,000

The break even point will go up from 32,000 units to 40,000 units

Step-by-step explanation: