Question

A company's product has a contribution margin of $6 per unit and a selling price of $25 per unit. fixed costs are $30,000. assuming new technology increases the unit contribution margin by 70% and increases total fixed costs by $23,040, what is the new breakeven point in sales units?

A. 5.250 units
B. 5.200 units
C. 5,670 units
D. 5 000 units

Answer 1

To find the new breakeven point, the new contribution margin per unit is calculated by increasing the original margin by 70%, and the new fixed costs are totaled. Dividing the total fixed costs by the new unit contribution margin gives the breakeven point in units, which is approximately 5,200 units.

Step-by-step explanation:

The student's question is about calculating a new breakeven point in sales units for a company after changes in the contribution margin and fixed costs due to new technology.

Firstly, we need to adjust the contribution margin. The original contribution margin is $6 per unit. After an increase of 70%, the new contribution margin becomes $6 + ($6 × 0.70) = $6 + $4.20 = $10.20 per unit. Now, we must consider the new fixed costs, which are the original $30,000 plus the additional $23,040, totaling $53,040.

The breakeven point is found by dividing the total fixed costs by the new contribution margin. Therefore, the new breakeven point in units would be calculated as $53,040 / $10.20 per unit, which equals approximately 5,200 units. Hence, Option B: 5,200 units is the correct answer.