Question: The company CEO is confident that the price reduction cited in Item c will cause consumer demand to increase to 950 units per day as Sales has predicted. She has speculated that the company might be able to serve the larger firms in the automotive supply chain given the press' higher capacity. With that in mind, she has asked Sheila to consider an even larger - and more expensive - machine. The cost to purchase and install the high capacity press would rise to $360,000. However, with the more efficient machine, material and labor costs would fall to $2.25 per unit. The anticipated sales price would remain at $4.45 per unit.
a. What is the breakeven point for this new press in units and in dollars? (Calculations are sufficient.)
b. In comparison with Part c, at what volume of demand should management choose the high capacity press? At what volume should they choose the press in Part c? Calculate the point of indifference given Part c and Part e, and describe it in words. (Requires calculations and a written response.)
c. Given the analyses done in Parts a through f, should the CEO call for the new press to be purchased and order the price reduction? Explain your rationale.