Question

Richland Enterprises has budgeted the following amounts for its next fiscal​ year: Total fixed expenses $ 51 comma 000 Selling price per unit $ 45 Variable expenses per unit $ 25 If Richland Enterprises can reduce fixed expenses by $ 12 comma 120​, how will breakeven sales in units be​ affected?

Answer 1

The company will need fewer units to break even.

Step-by-step explanation:

Giving the following information:

Total fixed expenses $51,000

Selling price per unit $45

Variable expenses per unit $25

New fixed costs= 51,000 - 12,120= 38,880

First, we need to calculate the actual break-even point. After that, determine the effect​ of the reduction on fixed costs.

Break-even point= fixed costs/ contribution margin

Break-even point= 51,000 / (45 - 25)

Break-even point= 2,550 units

Now, with fixed costs= 38,880

Break-even point= 38,880 / (45 - 25)= 1,944

The company will need fewer units to break even.