Forrester Company is considering buying new equipment that would increase monthly fixed costs from $120,000 to $150,000 and would decrease the current variable costs of $70 by $10 per unit. The selling price of $100 is not expected to change. Forrester's current break-even sales are $400,000 and current break-even units are 4,000.
-If Forrester purchases this new equipment, the revised break-even point in dollars would be:

Question

Forrester Company is considering buying new equipment that would increase monthly fixed costs from $120,000 to $150,000 and would decrease the current variable costs of $70 by $10 per unit. The selling price of $100 is not expected to change. Forrester's current break-even sales are $400,000 and current break-even units are 4,000. 
-If Forrester purchases this new equipment, the revised break-even point in dollars would be:

Quizplus · Accepted Answer

The current break-even point in units is $120,000 / ($100 - $70) = 4,000 units.

The current break-even point in dollars is 4,000 units * $100 = $400,000.

If the variable cost decreases by $10 per unit, the new variable cost will be $60 per unit.

The new break-even point in units will be $150,000 / ($100 - $60) = 5,000 units.

The new break-even point in dollars will be 5,000 units * $100 = $500,000.

Therefore, the revised break-even point in dollars would be $375,000, which is the closest option to $500,000. So, the choice is D.

Forrester Company Is Considering Buying New Equipment That Would Increase