Asked by Nicole Schutkin on May 29, 2024
Verified
Currently, the unit selling price is $50, the variable cost is $34, and the total fixed costs are $108,000. A proposal is being evaluated to increase the selling price to $54.
a. Compute the current break-even sales (units).
b. Compute the anticipated break-even sales (units), assuming that the unit selling price is increased and all costs remain constant.
Break-even Sales
The amount of revenue required to cover total costs, both fixed and variable, at which point a business neither makes a profit nor suffers a loss.
Variable Cost
Overheads that move in sync with the volume of manufacturing or sales, covering labor and material costs.
Fixed Costs
Expenses that do not change with the level of production or sales in the short term, such as rent, salaries, and insurance.
- Establish the break-even metric in quantities and monetary forms, realizing its critical importance in planning business strategies.
- Evaluate the effects of changes in sales, costs, and prices on a company's break-even point and profitability.
Verified Answer
TN
Trâm Nguy?nJun 01, 2024
Final Answer :
a.$108,000 ÷ ($50 - $34) = 6,750 units
b.$108,000 ÷ ($54 - $34) = 5,400 units
b.$108,000 ÷ ($54 - $34) = 5,400 units
Learning Objectives
- Establish the break-even metric in quantities and monetary forms, realizing its critical importance in planning business strategies.
- Evaluate the effects of changes in sales, costs, and prices on a company's break-even point and profitability.