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Ferguson Inc. is considering investing in technology that would increase fixed costs by $275,000 and decrease variable costs by 15%. As a result of
Ferguson Inc. is considering investing in technology that would increase fixed costs by $275,000 and decrease variable costs by 15%. As a result of this change, Ferguson's breakeven point will change from 9,000 units to 9,500 units. Current sales are 9,800 units per year and are expected to grow by 5% each year for the next five years. Should Ferguson make this change? Yes, the new breakeven point is below current sales, and the leverage will increase profitability over the next five years. Yes, the breakeven point will be higher which will decrease risk. Yes, the increase in fixed costs is offset by the decrease in variable costs. No, the breakeven point will be higher.
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