Question

In 2019, Vaughn sold 3000 units at $500 each. Variable expenses were $250 per unit, and fixed expenses were $550000. The same selling price is expected for 2020. Vaughn is tentatively planning to invest in equipment that would increase fixed costs by 20%, while decreasing variable costs per unit by 20%. What is Vaughn’s break-even point in units for 2020? 2200. 3300. 2750. 2640.

Answer 1

Break even point in units - 2020 = 2200 units

Step-by-step explanation:

The break even point in units is the number of units at which the total revenue equals the total cost. We can calculate the break even point in units using the following formula,

Break even in units = Fixed Cost / Contribution margin per unit

Where,

Contribution margin per unit = Selling price per unit - Variable cost per unit

We first need to calculate the new fixed costs and variable cost per unit for 2020.

New fixed cost = 550000 * (1 + 20%)

New fixed cost = $660000

New Variable cost per unit = 250 * (1 - 20%)

New Variable cost per unit = $200 per unit

Break even point in units - 2020 = 660000 / (500 - 200)

Break even point in units - 2020 = 2200 units