Eaton tool company has fixed costs of $200,000, sells its units for

Eaton Tool Company has fixed costs of $200,000, sells its units for $56, and has variable costs of $31 per unit.

 

         a.      Compute the break-even point.

 

         b.      Eaton comes up with a new plan to cut fixed costs to $150,000. However, more labor will now be required, which will increase variable costs per unit to $34. The sales price will remain at $56. What is the new break-even point?

 

         c.      Under the new plan, what is likely to happen to profitability at very high volume levels (compared to the old plan)?

 

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