Question

A product sells for $30 per unit and has variable costs of $18 per unit. The fixed costs are $720,000. If the variable costs per unit were to decrease to $15 per unit and fixed costs increase to $900,000, and the selling price does not change, break-even point in units would: a. current breakeven b. new breakeven Show all work to receive full credit

Answer 1

Answer:

Break-even point in units would not change.

Explanation:

Given:

Selling price = $30 per unit.

Variable cost = $18 per unit.

Fixed cost = $720,000.

New variable cost = $15.

New fixed cost = $900,000.

And, the selling price remains same, it doesn't change.

Now, to find the break-even point in units would be.

Now, to find the Current break-even point by using formula:

$Current\ breakeven\ point=\frac{Fixed\ cost}{selling\ price\ -\ variable\ cost}$

$Current\ breakeven\ point=\frac{720,000}{30\ -\ 18}$

$Current\ breakeven\ point=\frac{720,000}{12}$

$Current\ breakeven\ point=60,000\ units.$

So, we find the new breakeven point by putting formula:

$New\ breakeven\ point=\frac{New\ fixed\ cost}{selling\ price\ -\ new\ variable\ cost}$

$New\ breakeven\ point=\frac{900,000}{30-15}$

$New\ breakeven\ point=\frac{900,000}{15}$

$New\ breakeven\ point=60,000\ units.$

Now, we see that both the breakeven points current and new are having same units that is 60,000 units. So, break-even point would not change.

Therefore, break-even point in units would not change.