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Break-even analysis for Ensco Lighting Company

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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.

1. Compute the break-even point.
2. 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?
3. 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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1. 8,000 units (exact answer; break even doesn't fall on a fraction)

2. 6,818 units

Note - this is the closet whole unit, because the common assumption is that you ...

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