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Ogallah Inc. sells its product for $9.25 per unit. The variable costs per units are $2.50 and total fixed costs are $452,250. If Ogallah buys new software for the production process at a cost of $55,250, variable costs will be reduced by 20%.
-The breakeven point prior to the purchase of the computer is:
A)180,900
B)70,000
C)67,000
D)48,892

Question

Quizplus · Accepted Answer

To find the breakeven point, we can use the formula: 
Breakeven Point = (Total Fixed Costs) / (Price per unit - Variable Cost per unit)
Before the purchase of the new software:
Breakeven Point = 452,250 / (9.25 - 2.50) = 67,000 units
After the purchase of the new software:
Variable Cost per unit = 2.50 * 0.8 = 2.00
Breakeven Point = (452,250 + 55,250) / (9.25 - 2.00) = 70,000 units
Therefore, the breakeven point after the purchase of the new software is 70,000 units, which is higher than before. Therefore, purchasing the new software is not the best choice as it increases the breakeven point.

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