Question

A ceramics manufacturer sold cups last year for $7.50 each. Variable costs of manufacturing were $2.25 per unit. The company needed to sell 20,000 cups to break even. Net income was $5,040. This year, the company expects the price per cup to be $9.00; variable manufacturing costs to increase 33.3%; and fixed costs to increase 10%. How many cups (rounded) does the company need to sell this year to break even?

Answer 1

Break-even point= 19,250 units

Step-by-step explanation:

Giving the following information:

A ceramics manufacturer sold cups last year for $7.50 each. The variable costs of manufacturing were $2.25 per unit. The company needed to sell 20,000 cups to break even. Net income was $5,040. This year, the company expects the price per cup to be $9.00; variable manufacturing costs to increase by 33.3%, and fixed costs to increase by 10%.

First, we need to find the fixed costs.

Break-even point= fixed costs/ contribution margin

20,000= fixed costs/ (7.5 - 2.25)

105,000= fixed costs

New variable cost= 2.25*1.333= 3

Fixed costs= 105,000*1.10= 115,500

Selling price= 9

Break-even point= 115,500/(9 - 3)= 19,250 units