Question

Last year, a company had total sales of 2,200 units at $500 each with Net Income amounted to $45,000. The total fixed costs were $450,000 and variable costs were $275 per unit. The selling price will remain the same for this year. Yet, the company is planning to invest in new facilities that would increase fixed costs by 25%, while decreasing variable costs per unit by 20%. The company’s breakeven point in units for this year is …..

Select one:

a. 2,169

b. 2,479

c. None of the answers are correct

d. 2,008

e. 2,295

f. 2,000

g. 2,200

Answer 1

Solution: The answer is c. None of the answers are correct.

Explanation:

	Last year	This year
Selling price per unit	$500	$500
Less: Variable cost per unit	$275	$275 - 20% = $220
Contribution margin per unit	$225	$280
Fixed Costs	$450,000	$450,000 + 25% = $562,500

Breakeven point in units (this year) = Fixed Costs / Contribution margin per unit

= $562,500 / $280 = 2,008.93 units rounded to 2,009 units

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