Breakeven point, what if analysis Premier Products, Inc., is considering replacing its existing machine with a new and faster machine that will produce a more reliable product and will turn around customer orders in a shorter period. This change is expected to increase the sales price and fixed costs but not the variable costs:
|
COST ITEM |
OLD MACHINE |
NEW MACHINE |
|
Monthly fixed costs |
$120,000 |
$250,000 |
|
Variable cost per unit |
14 |
14 |
|
Sales price per unit |
18 |
20 |
Required
(a) Determine the breakeven point in units for the two machines.
(b) Determine the sales level in units at which the use of the new machine will achieve a 10% target profit to sales ratio.
(c) Determine the sales level in units at which profits will be the same for either the old or the new machine.
(d) Which machine represents a lower risk of incurring a loss? Explain why.
(e) Determine the sales level in units at which the profit to sales ratio will be equal with either machine.