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Profitability at very high volume levels

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Eaton Tool Company has fixed costs of $255,000, sells its units for $66, and has variable costs of $36 per unit.

a. Compute the break-even point.

b. Ms. Eaton comes up with a new plan to cut fixed costs to $200,000. However, more labor will now be required, which will increase variable costs per unit to $39. The sales price will remain at $66. What is the new break-even point?

c. Under the new plan, what is likely to happen to profitability at very high volume levels (compared to the old plan)?

Reference no: EM131444191

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