Question

Cezanne 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 50​%, and its current breakeven point is $600,000 in sales revenue. If the​ company's fixed expenses increase by $30,000 due to the​ equipment, what will its new breakeven point be​ (in sales​ revenue)? If Cezanne ​Industries' fixed expenses increase by $30,000 due to the​ equipment, what will its new breakeven point be​ (in sales​ revenue)? Begin by identifying the general formula to compute the breakeven sales in dollars. ( Fixed expenses + Operating income ) ÷ Contribution margin ratio = Breakeven sales in dollars Cezanne will now have to generate of sales revenue to break even.

Answer 1

Answer:

Break-even point (dollars)= $660,000

Explanation:

Giving the following information:

The​ company's contribution margin ratio is 50​%

The break-even point is $600,000 in sales revenue.

Fixed expenses increase by $30,000.

To calculate the new break-even point in sales, we need to determine the break-even point for the increase in fixed costs:

Proportional break-even point (dollars)= increase in fixed costs/ contribution margin ratio

Proportional break-even point (dollars)= 30,000/0.5

Proportional break-even point (dollars)= $60,000

New break-even point:

Break-even point (dollars)= 600,000 +  60,000

Break-even point (dollars)= $660,000