Question

The selling price of an item is 51% greater than the variable cost per item. Fixed costs are $59,000. Assume the selling price decreases by 20% and the variable and fixed costs remain the same. What is the break-even sales?

Answer 1

Let the variable cost per item is X per item.

selling price= X+ 51% of X

   =X+ 51X/100

   =151X/100

Fixed cost=59,000

If the selling price decrease by 20%

New selling price = 151X/100- 20% of 151X/100

=151X/100-3020X/10000

=(15100X-3020X)/10000

=12080X/10000

=1.208X

The selling price of an item is 51% greater than the variable cost per item. Fixed costs are $59,000. Assume the selling price decreases by 20% and the variable and fixed costs remain the same.

Break-even sales= {( Fixed cost)/ (Selling price - variable cost)}*Selling price

={( 59,000)/ (1.208X - X)}*1.208X

=(59000/0.208X)*1.208X

=(59000*1.208)/0.208

=71,272/0.208

=342,653.84 units