Question

harley lighting company has fixed costs of $100,000, sells its units for $28 and has variable costs of $15.50 per unit. compute the breakeven point. show your calculation. harley comes up with a new plan to cut fixed costs to $75,000. however, more labor will now be required, which will increase variable costs per unit to $17. the sales price will remain at $28. what is the new breakeven point? show your calculation. was the new plan a success? why?

Answer 1

The initial breakeven point for Harley Lighting Company was 8,000 units. After the implementation of a new plan reducing fixed costs and increasing variable costs, the new breakeven point became approximately 6,818 units, which means the company now needs to sell fewer units to cover all costs, indicating the new plan was successful in this respect.

Step-by-step explanation:

To compute the breakeven point, we need to first define it as the number of units that the company must sell to cover all its costs. The formula to calculate this is Fixed Costs ÷ (Sales Price per Unit - Variable Cost per Unit). Initially, Harley Lighting Company has fixed costs of $100,000, sells units for $28, and has variable costs of $15.50 per unit.

So, the breakeven point is:
$100,000 ÷ ($28 - $15.50) = $100,000 ÷ $12.50 = 8,000 units

With the new plan, fixed costs are reduced to $75,000, and variable costs per unit increase to $17. The breakeven point now is:
$75,000 ÷ ($28 - $17) = $75,000 ÷ $11 = 6,818 (approximately) units

The new plan was a success in terms of lowering the breakeven point, which now requires fewer units to be sold to cover all costs. However, it's important to consider other factors such as potential impacts on quality or delivery times, which could affect customer satisfaction and sales.