Fixed costs for a product are $60,000.The product itself sells for $4.00 and it costs $1.00 to make each product.How will the break-even point for the product change if the variable cost per unit goes up to $1.50?
A)The break-even point will increase by 4000.
B)The break-even point will increase by 24,000.
C)The break-even point will decrease by 4000.
D)The break-even point will increase by 20,000.

Question

Quizplus · Accepted Answer

The break-even point increases because the margin per unit decreases. Originally, the margin per unit is $3.00 ($4.00 - $1.00). If the variable cost increases to $1.50, the new margin per unit is $2.50 ($4.00 - $1.50). To find out how many more units need to be sold to break even, divide the fixed cost by the new margin: $60,000 / $2.50 = 24,000 units, compared to the original $60,000 / $3.00 = 20,000 units. The difference is 4,000 units, indicating the break-even point increases by 4,000 units.

Fixed Costs for a Product Are $60,000