Break-even analysis. TimeKeepers is about to introduce a new LED clock and has determined that it will charge $30 per clock. The company must decide whether or not to purchase a high-capacity clock-making machine. If the high-capacity machine is selected, then the fixed costs for the company will be $5,000 per year, with variable costs of $5 per clock. Otherwise the fixed costs will be $1,000, with variable costs of $15 per clock. Above what level of expected sales should TimeKeepers choose the high fixed cost alternative?
A) 400 units
B) 500 units
C) 4,000 units
D) 5,000 units

Question

Quizplus · Accepted Answer

Break-even point = Fixed costs / (Selling price per unit - Variable cost per unit)= 5,000 / (30 - 5)= 5,000 / 25= 200 unitsTherefore, TimeKeepers should choose the high fixed cost alternative if they expect to sell more than 200 units.

Break-Even Analysis