### Break-even point analysis

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##### Reference no: EM131273742

Break-even point analysis

An electric item manufacturing company produces extension cords, has a variable cost of production \$2.50 per unit and a selling price of \$5.00 per unit. Fixed costs are \$15,000. Current sales volume is 10,000 units. The firm can substantially improve the product quality by adding a new piece of equipment at the extension cord at an additional cost of \$7,000. Variable cost would increase to \$.50, but sales volume jump to 15,000 units due to a higher-quality product. Should the company buy the new equipment?

Note: Existing process: BEP = \$15,000/(unit sale price – unit production cost)

Find the BEP for New equipment

Profit = (Price sold ) (Quantity) – [(Fixed Cost + (Variable Cost) (Quantity)]

Profit = P.Q. – (FC + V.Q.)

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