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.
Required:
a. The revised break-even point in dollars is $ __________.

Answer 1

Answer:

The revised break even point in this case would be 7500 units of output.

Explanation:

In Accounting and Economics,the break event point for any company can be derived if the total fixed cost of production of the firm or company is divided by the marginal revenue or per unit of output revenue minus the variable cost for per unit of output.Here,the initial total fixed cost of production was $30,000 and after the purchase of the new manufacturing machine,the total fixed cost of production increased by $15,000.Hence,the new total fixed cost of production=$(30,000+15,000)=45,000$ dollars.

The previous per unit variable cost was $6 and following the purchase of the new machine,the new variable cost per unit of output decreases to $4.The marginal revenue or the revenue per unit of output is $10.

Therefore,the revised break even point in this case=$\frac{45,000}{(10-4)} =\frac{45,000}{6} =7500$ units of output.

Hence,the revised break even point would be 7500 units of output.