Question

If​ Moe's can reduce fixed expenses by $ 5600​, by how much can variable expenses per unit increase and still allow the company to maintain the original breakeven sales in​ units?

Answer 1

$0.8

Step-by-step explanation:

This is incomplete question. Lets complete the question with new and more information and answer that question.

Question to Consider:

Moe's has budgeted the following for next fiscal year:

Total Fixed Expenses ---------- 500,000

Selling Price Per Unit ----------- 45

Variable Expense Per Unit ---- 25

If​ Moe's can reduce fixed expenses by $20,000, by how much can variable expenses per unit increase and still allow the company to maintain the original breakeven sales in​ units?

Solution:

The profit per unit is:

45 - 25 = $20

To cover the fixed costs of $500,000 at $20 profit per unit, Moe's has to sell:

500,000/20 = 25,000 Units

Now, we want to keep this units same but now fixed costs are lessed by 20,000. So we fixed amount of costs are:

500,000 - 20,000 = 480,000

Now, we let the amount increase in variable cost be "x", so we can say profit would be (per unit):

45 - (25+x)

Now, to keep 25,000 units, we can solve the below equation:

`(480,000)/(45-(25+x))=25000`

Solving for x would give us the increase in variable cost. Lets solve for x:

`(480,000)/(45-(25+x))=25000\\480,000=(20-x)(25,000)\\480,000=500,000-25,000x\\25000x=20,000\\x=0.8`

So we can increase var expenses by $0.8