JumpUP Inc. produces two types of trampolines. One is smaller and is primarily used in gyms for exercise classes. The other is a larger model designed for recreational use. The smaller trampoline sells for $ 200 and has variable costs of $ 120. The larger trampoline sells for $ 600 and has variable costs of $ 420. JumpUP sells four smaller models for every one larger model sold. Fixed costs equal $ 1,250,000.

1. What is the breakeven point in unit sales and dollars for each type of trampoline at the current sales mix?
2. JumpUP is considering buying new production equipment. The new equipment will increase fixed cost by $ 202,000 per year and will decrease the variable cost of the small and large trampolines by $ 15 and $ 45, respectively. Assuming the same sales mix, how many of each type of trampoline does JumpUP need to sell to break even?
3. Assuming the same sales mix, at what total sales level would JumpUP be indifferent between using the old equipment and buying the new production equipment? If total sales are expected to be 13,000 units, should JumpUP buy the new production equipment?

  • CreatedJanuary 15, 2015
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