Watson Company produces and sells a single product called Gizmo. The selling price is $400.00 per unit, variable costs are $240 per unit, and total fixed costs are $80,000. Calculate the following:
1. The contribution margin per unit:
A. $400.00
B. $240.00
C. $160.00
D. $0
2. The contribution margin rate:
A. 100%
B. 60%
C. 50%
D. 40%
3. The break-even point in units:
A. 333.33
B. 5,000.00
C. 500.00
D. 3,333.33
4. The break-even point in sales dollars:
A. $200,000
B. $133,333
C. $333,333
D. $2,000,000
5. The company is considering a proposal to purchase a new machine which would cost $62,500 and which would reduce variable costs by $30 per unit. If they do so, the new break-even point in units would be:
A. 500
B. 2,083
C. 421
D. 750