Gall Manufacturing sells a product for $50 per unit. The fixed costs are $840000 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 $200000 and variable costs will be 50% of the selling price. The new break-even point in units is:
A) 42000.
B) 41600.
C) 41200.
D) 33600.

Question

Quizplus · Accepted Answer

The new variable cost per unit is 50% of $50, which is $25. The new fixed costs are $840,000 + $200,000 = $1,040,000. The contribution margin per unit is the selling price minus the variable cost, which is $50 - $25 = $25. The break-even point in units is the fixed costs divided by the contribution margin per unit, which is $1,040,000 / $25 = 41,600 units.

Gall Manufacturing Sells a Product for $50 Per Unit