Question

Juniper Enterprises sells handmade clocks. Its variable cost per clock is $10.20, and each clock sells for $17.00. The company’s fixed costs total $7,701. Suppose that Juniper raises its price by 20 percent, but costs do not change. What is its new break-even point?

Answer 1

755 units

Step-by-step explanation:

Given that,

variable cost per clock = $10.20

Selling price = $17

Fixed cost = $7,701

At old price,

Contribution margin:

= Selling price - Variable cost

= $17 - $10.20

= $6.8

Break even point:

= Fixed cost ÷ Contribution margin per unit

= $7,701 ÷ $6.8

= 1,132.5

Now, Suppose that Juniper raises its price by 20 percent, but costs do not change.

Selling price = $17 + ($17 × 20%)

= $17 + $3.4

= $20.4

Contribution margin:

= Selling price - Variable cost

= $20.4 - $10.20

= $10.2

New Break even point:

= Fixed cost ÷ Contribution margin per unit

= $7,701 ÷ $10.2

= 755 units