Question

# ABC Company reported the following information for May: contribution margin ratio ......... 56% fixed costs ..........................

```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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