Crystal Clear Products 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 $ 100 and has variable costs of $ 35.
The pitcher-cum-filter sells for $ 120 and has variable costs of $ 30.
Crystal Clear sells two faucet models for every three pitchers sold. Fixed costs equal $1,200,000.

1. What is the breakeven point in unit sales and dollars for each type of filter at the current sales mix?
2. Crystal Clear is considering buying new production equipment. The new equipment will increase fixed cost by $ 208,000 per year and will decrease the variable cost of the faucet and the pitcher units by $ 5 and $ 10, respectively. Assuming the same sales mix, how many of each type of filter does Crystal Clear need to sell to break even?
3. Assuming the same sales mix, at what total sales level would Crystal Clear be indifferent between using the old equipment and buying the new production equipment? If total sales are expected to be 24,000 units, should Crystal Clear buy the new production equipment?

  • CreatedMay 14, 2014
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