Elk Co. manufactures a product that sells for $12 per unit. Total fixed costs are $96,000 and variable costs are $7 per unit. Elk can buy a newer production machine that will increase total fixed costs by $22,800 and decrease variable costs by $0.40 per unit. What effect would the purchase of the new machine have on Elk's break-even point in units?
What will be an ideal response?
Current break-even point in units = $96,000/($12 - $7) = 19,200 units
New break-even point in units = ($96,000 + $22,800)/($12 - $6.60) = 22,000 units
Increase in break-even point in units = 22,000 - 19,200 = 2,800 unit increase
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