Question

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.

Answer 1

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