Pure Water 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 filter that only purifies water meant for drinking. The unit that attaches to the faucet is sold for $80 and has variable costs of $30. The pitcher filter sells for $110 and has variable costs of $40. Pure Water sells two faucet models for every three pitchers sold. Fixed costs equal $1,050,000. 

REQUIRED:

1. What is the breakeven point in unit sales and dollars for each type of filter at the current sales mix?

2. Pure Water is considering buying new production equipment. The new equipment will increase fixed costs by $180,000 per year and will decrease the variable cost of the faucet and pitcher units by $5 and $8, respectively. Assuming the same sales mix, how many of each type of filter does Pure Water need to sell to break even?

3. Assuming the same sales mix, at what total sales level would Pure Water be indifferent between using the old equipment and buying the new production equipment? If total sales were expected to be 30,000 units, should Pure Water buy the new production equipment?

Answer rating: 100% (QA)

Please find the detailed answer as follows Total Contribution ... View the full answer