Question

Claude Industries is planning on purchasing a new piece of equipment that will increase the quality of its production. It hopes the increased quality will generate more sales. The​ company's contribution margin ratio is 40​%, and its current breakeven point is $ 650 comma 000 in sales revenue. If the​ company's fixed expenses increase by $ 35 comma 000 due to the​ equipment, what will its new breakeven point be​ (in sales​ revenue)?\

Answer 1

Answer:

The new breakeven point is 737,500 in sales revenue

Explanation:

Breakeven point = Fixed cost / Contribution Margin Ratio

Actual Fixed Cost are Contribution Margin Ratio x Breakeven point

Fixed cost=Contribution Margin Ratio x Breakeven point

Fixed cost=0.40 x 650,000

Fixed cost=260000

If the​ company's fixed expenses increase

Fixed cost=260000 + 35000

Fixed cost=295000

Breakeven point = 295000/ 0.40

Breakeven point = 737,500