Asked by Keshawn Johnson on Apr 28, 2024
Verified
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,fixed costs increase to $900,000,and the selling price does not change,break-even point in units would:
A) Increase by 20,000.
B) Equal 6,000.
C) Increase by 6,000.
D) Decrease by 20,000.
E) Not change.
Break-Even Point
The point at which total cost and total revenue are equal, resulting in no net loss or gain for the business.
Variable Costs
Expenses that vary in relation to the amount of products or services a company generates.
Fixed Costs
Expenses that do not change with the level of goods or services produced by a business, such as rent, salaries, or loan payments.
- Investigate the impact of adjustments in fixed costs, variable costs, and selling price on the break-even point and contribution margin.
Verified Answer
ZK
Zybrea KnightMay 05, 2024
Final Answer :
E
Explanation :
The break-even point in units is calculated by dividing the fixed costs by the contribution margin per unit (selling price - variable costs). Initially, the contribution margin is $30 - $18 = $12. After the changes, it becomes $30 - $15 = $15. The initial fixed costs are $720,000, and after the change, they are $900,000. Initially, the break-even point is $720,000 / $12 = 60,000 units. After the changes, it is $900,000 / $15 = 60,000 units. Thus, the break-even point does not change.
Learning Objectives
- Investigate the impact of adjustments in fixed costs, variable costs, and selling price on the break-even point and contribution margin.