Maker's Company produces a product that has a variable cost of $4 per unit. The company's fixed costs are $40,000. The product sells for $12 per unit. The company is considering purchasing a new manufacturing machine which would improve efficiency. The new machine would decrease the variable cost to $3, but increase fixed costs by $5,000. The revised break-even point in dollars is $ .

Maker's Company produces a product that has a variable cost of $4 per unit. The company's fixed costs are $40,000. The product sells for $12 per unit. The company is considering purchasing a new manufacturing machine which would improve efficiency. The new machine would decrease the variable cost to $3, but increase fixed costs by $5,000.

Break-even point (dollars)= fixed costs/ contribution margin ratio

Break-even point (dollars)= (40,000 + 5,000) / [(12 - 3)/12]= $60,000

anthougo anthougo · Answer 2 · 2021-09-04T03:42:19+02:00

The revised break-even point in dollars is $60,000, which is the sales value where the total revenue equals the total costs (therefore, no profit, no loss).

The formula for break-even point in dollars is fixed costs divided by contribution margin ratio.

Fixed costs = $45,000 ($40,000 + $5,000)

Sales price per unit = $12

Variable cost per unit = $3

Contribution margin per unit = $9 ($12 - $3)

Contribution margin ratio = 75% or 0.75 ($9/$12 x 100)

Thus, the Break-even point in dollars = $60,000 ($45,000/0.75)

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