Breakeven

1. Ukaegbu, Inc., currently sells its product for $3.25 per unit. The variable cost per unit is $0.60 and fixed costs are $90,000. Purchasing a new machine will increase fixed costs by $6,000, but variable costs will be cut by 20 percent.

A. What is the breakeven point before the new machine is purchased?

B. What is the breakeven point after the new machine is purchased?

C. Should Ukaegbu, Inc., purchase the new machine? Why or why not?

2. Refer to the basic assumptions of the CVP discussion in the chapter. Without using any numbers, prepare a graph that illustrates the first four assumptions.

Gorman Company has the following cost-volume-profit relationships.

Breakeven point in units sold                                     1,000

Variable cost per unit                                                     $2,000

Fixed cost per period                                                     $750,000

A. What is the contribution margin per unit?

B. What is the selling price per unit?

C. What is the total profit if 1,001 units are sold?

Solution: