Splurge Electronics sells homework machines for $80 each.Variable costs per unit are $45 and total fixed costs are $43,750.Splurge is considering the purchase of new equipment that would increase fixed costs to $48,700, but decrease the variable costs per unit by $5.At that level, Splurge Electronics expects it can sell 1,500 units next year.What is the company's break-even point in units if it purchases the new equipment, assuming the selling price remains constant? (Round your answer to the nearest whole number.)

Question

Quizplus · Accepted Answer

Before considering the new equipment:
- Selling Price (P) = $80
- Variable Costs (V) = $45
- Fixed Costs (F) = $43,750
- Contribution Margin (P - V) = $35

To calculate the break-even point in units:
Breakeven Point in Units = Fixed Costs / Contribution Margin
Breakeven Point in Units = $43,750 / $35
Breakeven Point in Units = 1,250 units

After considering the new equipment:
- Selling Price (P) = $80
- Variable Costs (V) = $40
- Fixed Costs (F) = $48,700
- Contribution Margin (P - V) = $40

To calculate the new break-even point in units:
Breakeven Point in Units = Fixed Costs / Contribution Margin
Breakeven Point in Units = $48,700 / $40
Breakeven Point in Units = 1,217.5 units

Rounding to the nearest whole number results in a new break-even point in units of 1,218. Therefore, the best choice is B.

Splurge Electronics Sells Homework Machines for $80 Each