Question

A product sells for $30 per unit and has a variable costs of $17.75 per unit. The fixed costs are $967,750. If the variable cost per unit or to decrease to $15.50 per unit, fixed costs increase to $1,145,500, and the selling price does not change, break even point in units would:

A) equal 6000

B) Decrease by 25,742

C) Not change

D) Increase by 25,742

E) increase by 5925

Answer 1

A product sells for $30 per unit and has a variable costs of $17.75 per unit. The fixed costs are $967,750.

Contribution margin per unit = Selling price per unit – Variable cost per unit

= 30 - 17.75

= $12.25

Break even point (units) = Fixed cost/Contribution margin per unit

= 967,750/12.25

= 79,000

If the variable cost per unit decrease to $15.50 per unit, fixed costs increase to $1,145,500, and the selling price does not change, break even point in units would be calculated as under:

Contribution margin per unit = Selling price per unit – Variable cost per unit

= 30 - 15.50

= $14.50

Break even point (units) = Fixed cost/Contribution margin per unit

= 1,145,500/14.50

= 79,000

Break even point will not change.

Correct option is (C)