Question

If fixed costs are $300,000, the unit selling price is $25, and the unit variable costs are $20, what is the break-even sales (units) if the variable costs are decreased by $2?

a. 42,857 units
b. 17,143 units
c. 60,000 units
d. 100,000 units

Answer 1

a. 42,857 units

Step-by-step explanation:

Given that;

Fixed cost = $300,000

Unit Variable cost = $20

Since the variable costs are decreased by $2.

Then unit variable cost would be

= $20 - $2

= $18

Break even sales (units) is computed as;

= Fixed cost / Contribution margin

= $300,000 / [$25 -$18]

= $300,000 / $7

= 42,857 units