Question

Highway 55 Studios has budgeted the following amounts for its next fiscal​ year:

Total fixed expenses	$1,400,000
Selling price per unit	$60
Variable expenses per unit	$20

If Highway 55 Studios can reduce fixed expenses by $43,750​, by how much can variable expenses per unit increase and still allow the company to maintain the original breakeven sales in​ units?

A.$20.00

B.$21.25

C.$41.25

D.$ 18.75

Answer 1

Current :
contribution margin per unit = Selling price - Variable cost = 60-20	40
break-even point = Fixed cost / contribution margin per unit = 1400000/40	35000
Revised :
Fixed cost = 1400000-43750	1356250
break-even point = Fixed cost / contribution margin per unit
35000 = 1356250 / contribution margin per unit
contribution margin per unit = 1356250 / 35000	38.75
contribution margin per unit = Selling price - Variable cost
38.75 = 60 - Variable cost
Variable cost = 60 - 38.75	21.25
Answer : 21.25