If the contribution margin on a new product line is $15,fixed costs are $165,000,and the total market for the product is 22,000 units,then the breakeven analysis would recommend that the company
A)abandon the new product line.
B)decrease the sales price per unit.
C)increase fixed costs (such as advertising)to lower the breakeven units.
D)adopt the new product line.

Question

Quizplus · Accepted Answer

The contribution margin of $15 is greater than the fixed costs of $165,000, indicating that the product will generate a profit after breakeven point is reached. The breakeven point can be calculated by dividing the fixed costs by the contribution margin, which gives us 11,000 units. As the total market size is 22,000 units, it suggests that the company should adopt the new product line as it has the potential to generate a profit. They could also consider options to increase sales and reduce costs to increase profitability further.

If the Contribution Margin on a New Product Line Is