contestada

Currently, the unit selling price of a product is $350, the unit variable cost is $290, and the total fixed costs are $780,000. A proposal is being evaluated to increase the unit selling price to $390.

Required:
a. Compute the current break-even sales (units).
b. Compute the anticipated break-even sales (units), assuming that the unit selling price is increased to the proposed $390, and all costs remain constant.

Respuesta :

Solution :

a). [tex]\text{The contribution margin per unit = }[/tex][tex]\text{selling price per unit - variable cost per unit}[/tex]

                                                           = $ 350 - $ 290

                                                            = $60

The current break even sales = [tex]$\frac{\text{fixed cost}}{\text{contribution margin per unit}}$[/tex]

                                                  [tex]$=\frac{780,000}{60}$[/tex]

                                                 = 13,000 units

Therefore, the current break-even sales (units) = 13,000 units

b). The Contribution Margin Ratio = Selling Price Per Unit - Variable Cost Per Unit

                                                       = $390 - $290

                                                      = $ 100

[tex]$\text{Break even sales}=\frac{\text{fixed cost}}{\text{contribution margin per unit}}$[/tex]

                          [tex]$=\frac{780,000}{100}$[/tex]

                          = 7,800 units.

So, the answer is 7800 units.

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