Assume the following cost information for Quayle Corporation:

-If fixed costs increased by 10 percent, and management wanted to maintain the original break-even point, then the selling price per unit would have to be increased to
A) $99
B) $130
C) $94
D) $97

Question

Assume the following cost information for Quayle Corporation:
 
-If fixed costs increased by 10 percent, and management wanted to maintain the original break-even point, then the selling price per unit would have to be increased to
A) $99 
B) $130 
C) $94 
D) $97

Quizplus · Accepted Answer

To maintain the break-even point, the increase in fixed costs must be offset by an increase in selling price per unit. The formula for break-even point is:
Total Fixed Costs / (Price per unit - Variable cost per unit) = Break-even point in units
Let's assume the original selling price per unit was $100, and the variable cost per unit was $60. Using the above formula, we can calculate the original fixed costs to be $440,000. 
Now, if fixed costs increase by 10%, they will become $484,000. To maintain the break-even point, the new selling price per unit must be calculated as follows:
$484,000 / ($100 - $60) = 12,100
Solving for price per unit, we get $94. Therefore, the correct answer is C.

Assume the Following Cost Information for Quayle Corporation