Question

A product sells for $30 per unit and has variable costs of $18 per unit. The fixed costs are $720,000. If the variable costs per unit were to decrease to $15 per unit and fixed costs increase to $900,000, and the selling price does not change, break-even point in units would: a. current breakeven b. new breakeven Show all work to receive full credit

Answer 1

Break-even point in units would not change.

Step-by-step explanation:

Given:

Selling price = $30 per unit.

Variable cost = $18 per unit.

Fixed cost = $720,000.

New variable cost = $15.

New fixed cost = $900,000.

And, the selling price remains same, it doesn't change.

Now, to find the break-even point in units would be.

Now, to find the Current break-even point by using formula:

`Current\ breakeven\ point=(Fixed\ cost)/(selling\ price\ -\ variable\ cost)`

`Current\ breakeven\ point=(720,000)/(30\ -\ 18)`

`Current\ breakeven\ point=(720,000)/(12)`

`Current\ breakeven\ point=60,000\ units.`

So, we find the new breakeven point by putting formula:

`New\ breakeven\ point=(New\ fixed\ cost)/(selling\ price\ -\ new\ variable\ cost)`

`New\ breakeven\ point=(900,000)/(30-15)`

`New\ breakeven\ point=(900,000)/(15)`

`New\ breakeven\ point=60,000\ units.`

Now, we see that both the breakeven points current and new are having same units that is 60,000 units. So, break-even point would not change.

Therefore, break-even point in units would not change.