Forever Pure produces two types of water filters. One attaches to the faucet and cleans all water that passes through the faucet. The other is a pitcher-cum-filter that only purifies water meant for drinking.
The unit that attaches to the faucet is sold for $72 and has variable costs of $20.
The pitcher-cum-filter sells for $88 and has variable costs of $16.
Forever Pure sells two faucet models for every three pitchers sold. Fixed costs equal $960,000.
- What is the break-even point in unit sales and dollars for each type of filter at the current sales mix?
Forever Pure is considering buying new production equipment. The new equipment will increase fixed cost by $166,400 per year and will decrease the variable cost of the faucet and the pitcher units by $4 and $8, respectively.
- Assuming the same sales mix, how many of each type of filter does Forever Pure need to sell to break even?
- Assuming the same sales mix, at what total sales level would Forever Pure be indifferent between using the old equipment and buying the new production equipment?
- If total sales are expected to be 23,000 units, should Forever Pure buy the new production equipment?
- Assess lessons learned concerning cost-volume-profit analysis and decision making.
