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mestny [16]
3 years ago
5

Stephanie, Inc. sells its product for $40. The variable costs are $18 per unit. Fixed costs are $16,000. The company is consider

ing the purchase of an automated machine that will result in a $2 reduction in unit variable costs and an increase of $5,000 in fixed costs. Which of the following is true about the break-even point in units It will remain unchanged It will decrease. It will increase. It cannot be determined from the information provided.
Business
1 answer:
Yuliya22 [10]3 years ago
4 0

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 = \frac{Fixed Cost}{Contribution}

= 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.

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Explanation:

Note : The question requires us to use the weighted-average method. This method focuses on equivalent units of completed units and units still in process only.

Step 1 : Determine units completed and transferred

Units Completed = Beginning units + Units Started - Ending units

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Step 2 : Calculate equivalent units of production with respect to conversion costs

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