Ensco Lighting Company has fixed costs of $100,000, sells its units for $28 and has variable costs of $15.50 per unit a. Compute the breakeven point b. Ms. Watts comes up with a new plan to cut fixed costs to $75,000 However, more labor will now be required, which will increase variable costs per unit to $17. The sales price will remain at $28. What is the new breakeven point? c. Under the new plan, what is likely to happen to profitability at very high volume levels(compared to the old pla Solution: Ensco Lighting Company Fixed costs BE= Price-variable cost per unit s3 00.000$100.000 1550$12.508.000 units Fixed costs BE Price- variable cost per unit $75,000$75,000 6. units $28-$17$11 The breakeven level decreases c. With less operating leverage and a smaller contribution margin profitability is likely to be less at very high volume levels S-163 Copyright o by The McGraw-Hill Companies. InCopyright © 2005 by The McGraw-Hill Companies, Inc. S-163 5-3. Ensco Lighting Company has fixed costs of $100,000, sells its units for $28 and has variable costs of $15.50 per unit. a. Compute the breakeven point. b. Ms. Watts comes up with a new plan to cut fixed costs to $75,000. However, more labor will now be required, which will increase variable costs per unit to $17. The sales price will remain at $28. What is the new breakeven point? c. Under the new plan, what is likely to happen to profitability at very high volume levels (compared to the old plan)? Solution: Ensco Lighting Company a. 8,000 units $12.50 $100,000 $28 $15.50 $100,000 Price variable cost per unit Fixed costs BE = = − = − = b. 6,818 units $11 $75,000 $28 $17 $75,000 Price variable cost per unit Fixed costs BE = = − = − = The breakeven level decreases. c. With less operating leverage and a smaller contribution margin, profitability is likely to be less at very high volume levels