Question

RST Company produces a product that has a variable cost of $6 per unit. The company's fixed costs are $30,000. The product sells for $10 per unit. The company is considering purchasing a new manufacturing machine which would improve efficiency. The new machine would decrease the variable cost to $4, but increase fixed costs by $15,000. The revised break-even point in dollars is $ .

Answer 1

Answer:

$75,000

Explanation:

The computation of the revised break-even point in dollars is shown below:

Break even point = (Fixed expenses) ÷ (Profit volume Ratio)  

where,  

Contribution margin per unit = Selling price per unit - Variable expense per unit  

= $10 - $4

= $6

And, Profit volume ratio = (Contribution margin per unit) ÷ (selling price per unit) × 100

So, the Profit volume ratio = ($6) ÷ (10) × 100 = 60%

And, the fixed expenses is $30,000 + $15,000 = $45,000

Now put these values to the above formula  

So, the value would equal to  

= ($45,000) ÷ (60%)  

= $75,000