Suppose an investor is interested in purchasing the following income producing property at a current market price of $450,000. T
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Answer:
It will increase
Explanation:
Before the purchase of the automated machine, break even point is computed as follows:
Sale price: $40
Less variable cost: $18
Therefore, contribution per unit = $40 - $18 = $22.
With fixed cost at $16,000, breakeven point in units =
= 16,000/22
Break even cost = 727.27 units.
With the purchase of the automated machine, break even point is computed as follows:
Sale price: $40
Less variable cost: ($18 - $2) = $16
Therefore, contribution per unit = $40 - $16 = $24.
Fixed cost = $16,000 + $5,000 = $21,000.
Breakeven point in units = 21,000/24
Break even cost = 875 units.
Therefore, breakeven point will increase as a result of the purchase of the automated machine.