Air Quality Systems, Inc. manufactures a component used in equipment that removes pollutants from industrial emissions. The firm's fixed costs are $4,000,000 per year. The variable cost of each component is $2,000, and the components are sold for $3,000 each. The company sold 5,000 components during the prior year.
Answer a-d independently and ignore taxes.
a. Compute the break-even point in units. [4000]
b. What will the new break-even point be if fixed costs increase by 10%?
c. What was the company's net income for he prior year?
d. The sales manager believes that a reduction in the sales price to $2,500 will result in order for 1,200 more components each year. What will the break-even point be if the price is changed? [8,000]
e. Refer to question d. Should the price change be made?