Question

Boss Enterprises currently sells its products for $ 90 per unit. Management is contemplating a 40​% increase in the selling price for the next year. Variable costs are currently 40​% of sales revenue and are not expected to change next year. Fixed expenses are $ 270 comma 000 per year. What is the breakeven point in units at the current selling​ price?

Answer 1

break even point in units at the current selling​ price is $5000 units

Step-by-step explanation:

given data

Selling price = $ 90 per unit

selling price for next year = 40​% increase

Variable costs = 40​% of sales revenue

Fixed expenses = $ 270,000 per year

to find out

break even point in units at the current selling​ price

solution

we know that Contribution margin is

Contribution margin = 1 - Variable cost ratio ..............1

Contribution margin = 1 - 0.40

Contribution margin = 0.60

so Contribution per unit will be

Contribution per unit = Selling price × Contribution margin ratio .............2

Contribution per unit = $90 × 0.60

Contribution per unit = $54 per unit

and

Break even point in units at current price will be

Break even point =
`(Fixed cost)/( Contribution per unit)` ........3

Break even point =
`(270000)/( 54)`

Break even point = $5000 units

so break even point in units at the current selling​ price is $5000 units