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    Break-Even Analysis Managerial Finance

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    Ensco Lighting Company has fixed costs of $100,000, sells its units for $28, and has variable costs of $15.50 per unit.

    a. Compute the break-even point.
    b. Ms. Watts comes up with a new plan to cut fixed costs to $75,000. However,
    more labor will now be required, which will increase variable costs per unit
    to $17. The sales price will remain at $28. What is the new break-even point?
    c. Under the new plan, what is likely to happen to profitability at very high
    volume levels (compared to the old plan)?

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    Solution Preview

    Break-even analysis Managerial Finance I
    Ensco Lighting Company has fixed costs of $100,000, sells its units for $28, and has variable costs of $15.50 per unit.

    a. Compute the break-even point.

    Find the contribution margin per unit.

    Contribution margin per unit = Unit price - Variable cost per unit
    = 28 - 15.50
    = 12.50 per ...

    Solution Summary

    This solution is comprised of a detailed explanation to compute the break-even point.

    $2.19

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