Question

# Fixed costs \$200,000 20,000 units/year produced Selling price \$30 Variable cost/unit \$10 1. Should I invest...

Fixed costs \$200,000 20,000 units/year produced Selling price \$30 Variable cost/unit \$10

1. Should I invest in a machine that will increase fixed operating costs by \$20,000 to decrease VC/unit by \$1 and increase sales by 1,000 units at \$30 selling price?

2. What is the current operating breakeven? What is the proposed operating breakeven? Now Proposed Units Sales \$ Sales COGS Gross Profit FC (oper. costs) EBIT

 Now Proposed Units Sales \$ Sales COGS Gross Profit FC (oper. costs) EBIT

 Particulars Now Proposed Units 20000 21000 Sales \$ 30 30 Sales 600000 630000 COGS 200000 189000 Gross Profit 400000 441000 FC ( Operating Costs ) 200000 220000 EBIT 200000 221000

COGS

Now = 20000*10 = 200000

Proposed = 21000 * 9 = 189000

FC (OPerating costs)

Now = 200000 ( given)

Proposed = 200000+20000 = 220000

>>>>>>>>>>>>>>>>>

Operating Break even point = Fixed costs / Contribution per unit

Now = Contribution per unit = 30-10 = 20

= 200000 / 20 = 10000 Units

Proposed = Contribution per unit = 30-9 = 21

= 220000 / 21

= 10476 Units

Pls do rate, if the answer is correct and comment, if any further assistance is required.

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