Question

Accents Associates sells only one product, with a current selling price of $130 per unit. Variable costs are 60% of this selling price, and fixed costs are $40,000 per month. Management has decided to reduce the selling price to $125 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 current selling price of $130 per unit, what dollar volume of sales per month is required for Accents to earn a monthly operating income of $20,000

Answer 1

Break-even point (dollars)= $150,000

Step-by-step explanation:

Giving the following information:

Selling price= $130

Unitary variable cost= 130*0.6= $78

Fixed costs= $40,000

Desired profit= $20,000

To calculate the sales in dollars to reach the desired profit, we need to use the following formula:

Break-even point (dollars)= (fixed costs + desired profit) / contribution margin ratio

Break-even point (dollars)= (20,000 + 40,000) / [(130 - 78) / 130]

Break-even point (dollars)= 60,000 / 0.4

Break-even point (dollars)= $150,000