Mueller Corp.manufactures compact discs that sell for $5.Fixed costs are $28,000 and variable costs are $3.60 per unit.Mueller can buy a newer production machine that will increase fixed costs by $8,000 per year but will decrease variable costs by $0.40 per unit.What effect would the purchase of the new machine have on Mueller's break-even point in units?
A) 4,444 unit increase.
B) 9,850 unit decrease.
C) 5,714 unit increase.
D) 4,444 unit decrease.
E) No effect on the break-even point in units.

Question

Quizplus · Accepted Answer

Break-even point with old machine = $28,000/($5.00 - $3.60) = 20,000 units
Break-even point with new machine = ($28,000 + $8,000)/[$5.00 - ($3.60 -$0.40)] = 20,000 units