Question

Break-Even Sales Currently, the unit selling price of a product is $280, the unit variable cost is $230, and the total fixed costs are $560,000. A proposal is being evaluated to increase the unit selling price to $310. a. Compute the current break-even sales (units). units b. Compute the anticipated break-even sales (units), assuming that the unit selling price is increased and all costs remain constant. units

Answer 1

a.

Break even in units sales = 11200 units

b.

Break even in units sales = 7000 units

Step-by-step explanation:

Break even sales in units is the number of units needed to be sold in order for the company to reach a point where it covers all of its total cost with its total revenue and break evens. It is a point of no profit and no loss and the total revenue is equal to the total costs.

The formula to calculate break even in units is,

Break even in units = Fixed cost / Contribution margin per unit

Where, contribution margin per unit = Selling price per unit - Variable cost per unit

a.

Break even in units = 560000 / (280 - 230)

Break even in units = 11200 units

b.

Anticipated Break even in units = 560000 / (310 - 230)

Anticipated Break even in units = 7000 units