Foggy Co.has the following operating data for its manufacturing operations: $$\begin{array} { l r }
\text { Unit selling price } & \$ 250 \
\text { Unit variable cost } & \$ 100 \
\text { Total fixed costs } & \$ 840,000
\end{array}$$ ? The company has decided to increase the wages of hourly workers, which will increase the unit variable cost by 10%.Increases in the salaries of factory supervisors and property taxes for the factory will increase fixed costs by 4%.If sales prices are held constant, the break-even point for Foggy Co.will:
A) increase by 400 units.
B) increase by 640 units.
C) decrease by 640 units.
D) increase by 800 units.

Question

Foggy Co.has the following operating data for its manufacturing operations: $$\begin{array} { l r } 
\text { Unit selling price } & \$ 250 \
\text { Unit variable cost } & \$ 100 \
\text { Total fixed costs } & \$ 840,000
\end{array}$$ ? The company has decided to increase the wages of hourly workers, which will increase the unit variable cost by 10%.Increases in the salaries of factory supervisors and property taxes for the factory will increase fixed costs by 4%.If sales prices are held constant, the break-even point for Foggy Co.will:
A) increase by 400 units.
B) increase by 640 units.
C) decrease by 640 units.
D) increase by 800 units.

Quizplus · Accepted Answer

The original contribution margin per unit is $250 - $100 = $150. The new unit variable cost after a 10% increase is $100 + ($100 * 0.10) = $110, making the new contribution margin per unit $250 - $110 = $140. The original fixed costs are $840,000, and with a 4% increase, the new fixed costs are $840,000 + ($840,000 * 0.04) = $873,600. The original break-even point in units is $840,000 / $150 = 5,600 units. The new break-even point is $873,600 / $140 = 6,240 units. The increase in the break-even point is 6,240 - 5,600 = 640 units.

Foggy CoHas the Following Operating Data for Its Manufacturing Operations