Problem 5-6 Break-even analysis [LO2] Jay Linoleum Company has fixed costs of $3
ID: 2683421 • Letter: P
Question
Problem 5-6 Break-even analysis [LO2]Jay Linoleum Company has fixed costs of $356,000. Its product currently sells for $15 per unit and has variable costs per unit of $7.00. Mr. Thomas, the head of manufacturing, proposes to buy new equipment that will cost $410,000 and drive up fixed costs to $490,000. Although the price will remain at $15 per unit, the increased automation will reduce variable costs per unit to $5.00.
(a) Compute the following break-even points?
Break-even point (before) units
Break-even point (after) units
(b) As a result of Thomas
Explanation / Answer
a)BEP(before) = 356,000/(15-7)=44,500 units BEP(after)=$490,000/(15-5)=49,000 units b)The break-even point will go up.