Question

Break-Even Sales Currently, the unit selling price of a product is $1,500, the unit variable cost is $1,200, and the total fixed costs are $4,500,000. A proposal is being evaluated to increase the unit selling price to $1,600. a. Compute the current break-even sales (units). fill in the blank 1 units b. Compute the anticipated break-even sales (units), assuming that the unit selling price is increased and all costs remain constant. fill in the blank 2 units

Answer 1

Answer and Explanation:

a. The computation of the current break-even sales (units) is shown below:

= Fixed cost ÷ (Selling price - variable cost)

= $4,500,000 ÷ ($1,500 - $1,200)

= $4,500,000 ÷ $300 units

= 15,000 units

b. The anticipated break-even sales (units) is

= Fixed cost ÷ (Selling price - variable cost)

= $4,500,000 ÷ ($1,600 - $1,200)

= $4,500,000 ÷ $400 units

= 11,250 units