Mullis Corp. manufactures DVDs that sell for $6.90. Fixed costs are $41,000 and variable costs are $4.90 per unit. Mullis can buy a newer production machine that will increase fixed costs by $12,300 per year, but will decrease variable costs by $0.60 per unit. What effect would the purchase of the new machine have on Mullis' break-even point in units?

No effect

Explanation:

The computation of the break even point in units is shown below:

= (Fixed cost) ÷ (Contribution margin per unit)

where,  

Contribution margin per unit = Selling price per unit - Variable expense per unit

In the first case,

The contribution margin per unit = $6.90 - $4.90

= $2

So, the units is

= ($41,000) ÷ ($2)

= 20,500 units

And, in the second case, the contribution margin per unit is

= $6.90 - $4.90 + $0.60

= $2.60

And, the fixed cost is

= $41,000 + $12,300

= $53,300

So, the units is

= ($53,300) ÷ ($2.60)

= 20,500 units

Therefore no effect

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answer; normative economics;