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Question
Hensley Corporation uses breakeven analysis to study the effects of expansion projects it considers. Currently, the firm's plastic bag business segment has fixed operating costs of $120,000, while its unit price per carton is $1.20 and its variable unit cost is $0.60. The firm is considering a new bag machine and an automatic carton folder as modifications to its existing production lines. With the expansion, fixed costs would rise to $240,000, but variable cost would drop to $0.41 per unit. One key benefit is that Hensley can lower its wholesale price to its distributors to $1.05 per carton (i.e., its selling price), and this would likely more than double its market share, as it will become the lowest cost producer. What is the change in the operating breakeven volume with the proposed project?
a. 100,000 units
b. 175,000 units
c. 75,000 units
d. 200,000 units
e. 0 units
Answer
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