CPA · Question 06 · Area I: Business Analysis
Vortex Corp. sells a single product for $50. Variable costs are $30 per unit. Fixed costs are $200,000. Vortex is considering purchasing a new machine that would increase fixed costs by $60,000 but reduce variable costs by $5 per unit. If Vortex expects to sell 15,000 units, should they purchase the machine, and how would their operating leverage change?
Answer options:
No, because operating income would decrease by $25,000; Operating leverage would decrease.
Yes, because operating income would increase by $25,000; Operating leverage would increase.
Yes, because operating income would increase by $15,000; Operating leverage would decrease.
No, because the breakeven point would increase to 12,000 units.
50 questions · hints · full answers · grading
Expert