Schmidt Inc., manufactures inexpensive cameras that sell for $50.00. Fixed costs are $720,000 and variable costs are $30.00 per unit. Schmidt can buy a newer production machine that will increase fixed costs by $14,400 per year, but will increase variable costs by 10% per unit. What are the original and the new breakeven points in this situation?

Question

Quizplus · Accepted Answer

The original breakeven point can be calculated as follows:
Revenue = Cost
$50.00Q = $720,000 + $30.00Q
$20.00Q = $720,000
Q = 36,000 units

The new breakeven point can be calculated as follows:
Revenue = Cost
$50.00Q = $720,000 + 1.1($33.00)Q + $14,400
$50.00Q = $720,000 + $36.30Q + $14,400
$13.70Q = $734,400
Q = 53,573 units

Therefore, the original breakeven point is 36,000 units and the new breakeven point is 53,573 units. The answer is D, as it matches both values.