Walters Corporation sells radios for $50 per unit. The fixed costs are $525000 and the variable costs are 60% of the selling price. As a result of new automated equipment it is anticipated that fixed costs will increase by $125000 and variable costs will be 50% of the selling price. The new break-even point in units is:
A) 26250
B) 26000
C) 25750
D) 21000

Question

Quizplus · Accepted Answer

The new fixed costs will be $525,000 + $125,000 = $650,000. With the variable cost now 50% of the selling price, the variable cost per unit is 50% of $50 = $25. The contribution margin per unit is the selling price minus the variable cost per unit, which is $50 - $25 = $25. The break-even point in units is the fixed costs divided by the contribution margin per unit, so $650,000 / $25 = 26,000 units.

Walters Corporation Sells Radios for $50 Per Unit