ABC Company reported the following information for May: contribution margin ratio ......... 56% fixed costs ....................... $133,000 variable cost per unit ............ $22 For the month of June, ABC Company expects its fixed costs to increase by $42,750 while the variable cost per unit will not change (it will remain at $22 per unit). Calculate the selling price per unit of ABC Company's product needed in June in order to maintain the same break-even point in units as in May.
Contribution margin =Selling price – Variable cost
If variable cost is 22 per unit and Contribution margin is 56% then it means Variable cost is 44% of sales.
So we get sales price is ($22/44 x 100) =$50
We know that at breakeven fixed cost is equal to contribution margin.
Number of units sold =Contribution margin in $ /Contribution per unit
Number of units sold =$133000/28
Number of units sold =4750
Now when selling price is changing from 133000 to $175750 we need to calculate a price at which company covers all its fixed cost.
Increased fixed cost to recover |
$ 175,750.00 |
Variable cost to recover (4750x 22) |
$ 104,500.00 |
Total Revenue to breakeven |
$ 280,250.00 |
Number of units |
4750 |
Sales price per unit |
$ 59.00 |
New selling price would be $ 59
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