Ensco Lighting Company has fixed cost of $100,000 sells its units for $28, and has variable costs of $15.50 per unit.

Instructions:

a. Compute the break-even point.

b. Ms. Watts comes up with 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 break-even point?

c. Under the new plan, what is likely to happen to profitability at very high volume levels (compared to the old plan)?