Question

Break-Even Sales Currently, the unit selling price of a product is $1,350, the unit variable cost is $900, and the total fixed costs are $810,000. A proposal is being evaluated to increase the unit selling price to $1,400. 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.

Answer 1

(A). 1,800 units

(B). 1,620 units

Step-by-step explanation:

(A). We can calculate the break-even sales by using following formula,

Current break-even sale (Unit) = Fixed cost ÷ Contribution margin/unit

Where, Fixed cost = $810,000

Contribution margin/unit = Unit sell price - Unit variable cost

= $1,350 - $900 = $450

By putting the above value in the formula, we get

Current break-even sale (Unit) = $810,000 ÷ $450

= 1,800units

(B). Similarly, we can calculate the anticipated break-even sales by using following formula:

Anticipated break-even sale(Unit) = Fixed cost ÷ Contribution margin/unit

Where, Fixed cost = $810,000

Contribution margin/unit = Unit sell price - Unit variable cost

= $1,400 - $900 = $500

By putting the above value in the formula, we get

Anticipated break-even sale(Unit) = $810,000 ÷ $500

= 1,620units