Question

Accents Associates sells only one product, with a current selling price of $70 per unit. Variable costs are 40% of this selling price, and fixed costs are $12,000 per month. Management has decided to reduce the selling price to $65 per unit in an effort to increase sales. Assume that the cost of the product and fixed operating expenses are not changed by this reduction in selling price. At the reduced selling price of $65 per unit, what dollar volume of sales per month is required to break-even? (Round your intermediate percentage to one decimal place and final answer to nearest whole dollar.) Multiple Choice $22,727 $27,842 $29,540 $21,090

Answer 1

To break-even at a reduced selling price of $65 per unit, the company needs to achieve a sales volume of approximately 307.7 units per month, resulting in a dollar volume of sales per month of approximately $20,000.

Step-by-step explanation:

To calculate the break-even point, we need to determine the contribution margin per unit and divide the fixed costs by the contribution margin per unit. The contribution margin per unit is calculated as the selling price per unit minus the variable costs per unit. In this case, the selling price per unit is $65 and the variable costs per unit are 40% of the selling price, which is $26. Therefore, the contribution margin per unit is $65 - $26 = $39.

To calculate the break-even sales volume, we divide the fixed costs ($12,000) by the contribution margin per unit ($39). So, the break-even sales volume is $12,000 divided by $39, which is approximately 307.7 units.

To find the dollar volume of sales per month required to break-even, we multiply the break-even sales volume (307.7 units) by the selling price per unit ($65). The dollar volume of sales per month required to break-even is approximately $20,000.

Answer 2

The break-even dollar volume of sales per month after reducing the selling price to $65 per unit, given fixed costs of $12,000 and variable costs at 40%, is $20,000.

Step-by-step explanation:

To solve for the break-even dollar volume of sales per month after the price reduction to $65 per unit, we need to consider both the fixed and variable costs. The variable cost per unit at the reduced price will be 40% of $65, which is $26. The contribution margin per unit will then be the selling price minus the variable cost, which is $65 - $26 = $39. The fixed costs remain at $12,000. Therefore, to calculate the break-even sales in dollars, we divide the fixed costs by the contribution margin ratio (which is the contribution margin per unit divided by the selling price per unit).

The contribution margin ratio is $39 (contribution margin per unit) / $65 (selling price per unit) = 0.6. The break-even sales in dollars are $12,000 (fixed costs) / 0.6 (contribution margin ratio) = $20,000.