Problem
Mike's Grocery is manufacturing a "store brand" item that has a variable cost of $0.85 per unit. Fixed costs are $12,000. The Grocery can substantially improve the product volume by adding a new piece of equipment at an additional fixed cost of $8,000. Variable cost would reduce to $0.60 per unit.
i. What is the break-even point (in units) between the two options?
ii. Develop a break-even chart.
iii. Should the company buy the new equipment?