Question

: The fixed costs are $30,000,000, the variable cost per unit is $4.50, and there is...

  1. : The fixed costs are $30,000,000, the variable cost per unit is $4.50, and there is no expected change in the cost per unit for changes in unit volume.
    1. calculate the breakeven volume for GW at the current price of $19.99.
    2. Next, consider the relationship between price and break-even volume for GW: What happens to break-even volume when a $5 price increase is made?
    3. What about a $5 price decrease?
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Answer #1

a. Contribution margin per unit = Selling price per unit - Variable costs per unit

= $19.99 - $4.5

= $15.49

Break-even volume = Fixed costs / Contribution margin per unit

= $30,000,000 / $15.49

= 1,936,733

b. Contribution margin per unit = Selling price per unit - Variable costs per unit

= $24.99 - $4.5

= $20.49

Break-even volume = Fixed costs / Contribution margin per unit

= $30,000,000 / $20.49

= 1,464,129

Break-even point decreases by 472,604 (1,936,733-1,464,129)

c. Contribution margin per unit = Selling price per unit - Variable costs per unit

= $14.99 - $4.5

= $10.49

Break-even volume = Fixed costs / Contribution margin per unit

= $30,000,000 / $10.49

= 2,859,867

Break-even point increases by 923,134 (2,859,867-1,936,733)

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