Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A company generates $ 5 , 0 0 0 , 0 0 0 in sales units sold at a price of $ 5 per unit

A company generates $5,000,000 in sales units sold at a price of $5 per unit). Its variable costs equal 80 percent of sales ($4 per unit), its fixed costs are $500,000, its interest expense is equal to $100,000, its tax rate is equal to 40%, and it has 2,000,000 shares of common stock outstanding. The firm is considering a new type of machine for its existing production lines. With the new machine, fixed costs would increase to $600,000, but variable costs would decrease to $3 per unit and interest expense would increase to $150,000. One key benefit is that the company can then lower its price by $0.50 per unit (that is, a price of $4.50 per unit), and this would likely double its sales to 2,000,000 units. What are the EBIT breakeven volume and the Net Income breakeven volume if they change from the existing machine to the new machine? (Sample income statements are provided below as an aid. You are not required to use them.)
\table[[Current,New],[Units,1,000,000.00,Units,2,000,000.00
image text in transcribed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Accounting questions