Question

A. If a firm has: 1) fixed cost of $10,000, 2) normal return of $20,000, 3) selling price of $1,000 per unit, and 4) variable cost of $600 per unit; what is the breakeven point in units? B. Recalculate the above breakeven pit in units assuming a 20 % reduction in the selling price per unit.

Answer 1

Answer:

BEP in units is 25 units, and B) 50 units.

Explanation:

The formula for Break even point is Fixed costs / Contribution per unit or total contribution.

In the following scenario the contribution per unit is $1000 - $600 = $400.

The fixed costs are $10000. Thus the Break even point in units will be 10000/400 = 25 units.

If the selling price drops by 20%, the contribution will now be $200. (200 dollars less due to the 20% drop).

The break even point will now be;

10000/200 = 50 units