Shawn Pen & Pencil Sets Inc. has fixed costs of $378,400. Its product currently sells for $16 per unit and has variable costs of $7.40 per unit. Mr. Bic, the head of manufacturing, proposes to buy new equipment that will cost $420,000 and drive up fixed costs to $516,000. Although the price will remain at $16 per unit, the increased automation will reduce costs per unit to $5.25.

a. Compute the following break-even points. (Do not round intermediate calculations.)

b. As a result of Bics suggestion, will the break-even point go up or down?

multiple choice

• The break-even point will go up.

• The break-even point will go down.