Hess Company manufactures a product that sells for $12 per unit. Total fixed costs are $96,000 and variable costs are $7 per unit. Hess can buy a newer production machine that will increase total fixed costs by $22,800 but variable costs will be decreased by $0.40 per unit.
Required:
a. What is the current breakeven point in units before the newer machine is purchased?
b. What effect would the purchase of the new machine have on Hess's break-even point in units?
c. Suppose the newer machine is bought and the company wishes to make a net income of $12,000, how much is sales dollars will have to be sold to achieve that goal?
d. Calculate the margin of safety at the level of sales in part c above and the newer production machine is purchased.