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

Quizplus · Accepted Answer

The revised break-even point in dollars is calculated by dividing the new total fixed costs by the new contribution margin per unit. The new fixed costs are $150,000, and the new contribution margin per unit is $40 ($100 selling price - $60 new variable cost). The break-even point in units is $150,000 / $40 = 3,750 units. In dollars, this is 3,750 units * $100 = $375,000.

Forrester Company Is Considering Buying New Equipment That Would Increase