Reducing the variable cost

Reference no: EM1358702

A linoleum producer has fixed costs of $70,000. Its product currently sells for $4 per unit and has a variable cost of $2.60 per unit. The head of manufacturing has proposed to buy new equipment that will cost $300,000 and drive fixed costs up to $105,000. Although the unit price will remain at $4, the increase automation will reduce the variable cost per unit to $2.25.

As a result of the manufacturing head's suggestion, will the break-even point go up or down? Compute the numbers necessary to make that determination.

Reference no: EM1358702

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