If the Jay Linoleum Company has fixed costs of $70,000, and its product currently sells for $4 per unit with the variable costs per unit at $2.60. Mr. Thomas, the head of Manufacturing, proposes to buy new equipment that will cost $300,000 and drive up fixed costs to $105,000. With the price remaining at $4 per unit, the increased automation reduces variable costs per unit to $2.25.
Question: Will the break-even point go up or down?
Compute the necessary numbers.
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Increases automation can reduce the variable cost to $2.25 per unit
The break even point depends on the FC and the contribution per unit
Fixed Cost= $70,000
Evaluates the effect of new equipment on breakeven point.