Question

Gitli Company sells its product for $ 55 and has variable cost of $ 30 per unit. The total fixed costs are $ 25,000. What will be the effect on the breakeven point in units if variable cost increases by $ 5 due to an increase in the cost of direct​ materials? A.It will increase by 250 units. B.It will decrease by 167 units. C.It will decrease by 250 units. D.It will increase by 167 units.

Answer 1

Answer:

A.It will increase by 250 units.

Gitli will need to sale 250 more units to break even.

Explanation:

First we calculate the CM per unit

$Sales \: Revenue - Variable \: Cost = Contribution \: Margin$

55 - 30 = 25

Then we calculate the current BEP in untis

$\frac{Fixed\:Cost}{Contribution \:Margin} = Break\: Even\: Point_{units}$

25,000/25 = 1,000

Next we recalculate the CM for the new escenario

If variable cost increase $5:

CM 25 - 5 = 20

And the New BEP :

25,000/20 = 1,250

Last step will be calculate the cinrease or decrease:

1,250 - 1,000 = Δ250