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Andrews [41]
3 years ago
5

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

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?
a. It will remain unchanged
b. It will decrease.
c. It will increase.
d. It cannot be determined from the information provided.
Business
1 answer:
Ahat [919]3 years ago
8 0

Answer:

c. It will increase.

Explanation:

Break even point is the level of activity at which a firm neither makes a profit nor a loss.

<em>Break - even units = Fixed Costs ÷ Contribution per unit </em>

therefore,

<u>Existing break-even point in units :</u>

Break - even units = $16,000 ÷ ($40 - $18) = 727.27 or 728 units

<u>New break-even point in units :</u>

Break - even units = $21,000 ÷ ($40 - $16) = 875 units

Conclusion :

The results show that break-even point in units will increase from 728 units to  875 units as a result of the changes

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