A manufacturer contemplates a change in technology that would reduce fixed costs from $800,000 to $600,000,and reduce depreciation expense from $125,000 to $100,000.However,the ratio of variable costs to sales would increase from 68% to 80%.What would be the change in the break-even level of revenues?
A) Increase of $609,375
B) Increase of $574,750
C) Decrease of $211,250
D) Decrease of $341,675

Question

Quizplus · Accepted Answer

Accounting B / E_Current = ($800,000 + 125,000) / (1 − 0.68) = $2,890,625Accounting B / E_Proposed = ($600,000 + 100,000) / (1 − 0.80) = $3,500,000ΔAccounting B / E = $3,500,000 − 2,890,625 = $609,375

A Manufacturer Contemplates a Change in Technology That Would Reduce