Reference no: EM132714741

Question - Pure Water Products (PWP) sells two types of water filters. The OnFaucet attaches to the faucet and cleans all water that passes through the faucet. The InPitcher is a pitcher filter that only purifies water meant for drinking. The OnFaucet sells for $85 and has variable costs of $40. The InPitcher sells for $65 and has variable costs of $27.50. PWP sells 3 OnFaucet filters for every 7 InPitchers sold. Fixed costs total $1,772,500.

Required -

1. What is the breakeven point in sales and units for each filter?

2. PWP is thinking about purchasing a new machine to produce the filters. The new equipment will increase fixed costs by $224,400 but will decrease the variable cost for each filter. The OnFaucet would have variable costs of $36.50 while the InPitcher's variable costs would be reduced to $22. Assuming the sales mix does not change, what is the new breakeven point for each type of filter?

3. If the sales mix stays the same, at what total sales level would PWP be indifferent between buying the new machine and using the old machine?

4. If total sales are expected to be 40,000 units, should PWP buy the new machine?