Question

Accents Associates sells only one product, with a current selling price of $70 per unit. Variable costs are 40% of this selling price, and fixed costs are $12,000 per month. Management has decided to reduce the selling price to $65 per unit in an effort to increase sales. Assume that the cost of the product and fixed operating expenses are not changed by this reduction in selling price. At the reduced selling price of $65 per unit, what dollar volume of sales per month is required to break-even? (Rounded)

A) $27,842.
	B)	$22,727.
	C)	$21,090.
	D)	$28,427.

Answer 1

Sale price	$70.00
Less: Variable cost	$28.00
(40% of sale price)
Contribution margin per unit	$42.00
Fixed cost	$12,000.00
Break even point =	Fixed cost/Contribution margin per unit
=	$12,000/$42
=	286	units
Sale price	$65.00
Less: Variable cost	$28.00	43.1%
Contribution margin per unit	$37.00	56.9%
Break-even point in sales dollar
Break even point =	Fixed cost/Contribution margin ratio
=	$12,000/56.9%
=	21090	units