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Fill in the Blank QuestionFill in the blank question.Maker's Company produces a product that has a variable cost of $4 per unit. The company's fixed costs are $40,000. The product sells for $12 per unit. The company is considering purchasing a new manufacturing machine which would improve efficiency. The new machine would decrease the variable cost to $3, but increase fixed costs by $5,000. The revised break-even point in dollars is $.

Question

Fill in the Blank QuestionFill in the blank question.Maker's Company produces a product that has a variable cost of 4perunit.Thecompanysfixedcostsare4 per unit. The company's fixed costs are 40,000. The product sells for 12perunit.Thecompanyisconsideringpurchasinganewmanufacturingmachinewhichwouldimproveefficiency.Thenewmachinewoulddecreasethevariablecostto12 per unit. The company is considering purchasing a new manufacturing machine which would improve efficiency. The new machine would decrease the variable cost to 3, but increase fixed costs by 5,000.Therevisedbreakevenpointindollarsis5,000. The revised break-even point in dollars is .

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Solution

To calculate the revised break-even point in dollars, we first need to calculate the revised contribution margin per unit and the revised total fixed costs.

  1. The revised variable cost per unit is 3.Sincetheproductsellsfor3. Since the product sells for 12 per unit, the revised contribution margin per unit is 1212 - 3 = $9.

  2. The revised total fixed costs are the original fixed costs plus the additional fixed costs from the new machine, which is 40,000+40,000 + 5,000 = $45,000.

  3. The break-even point in units is calculated by dividing the total fixed costs by the contribution margin per unit. So, the revised break-even point in units is 45,000/45,000 / 9 = 5,000 units.

  4. To find the break-even point in dollars, we multiply the break-even point in units by the selling price per unit. Therefore, the revised break-even point in dollars is 5,000 units * 12/unit=12/unit = 60,000.

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