Gitli Company sells its product for $60 and has variable cost of $35 per unit.The total fixed costs are $26,000.What will be the effect on the breakeven point in units if variable cost increases by $5 due to an increase in the cost of direct materials? (Round your answer up to the nearest whole unit.)
A) It will increase by 260 units.
B) It will decrease by 260 units.
C) It will decrease by 176 units.
D) It will increase by 176 units.

Question

Quizplus · Accepted Answer

Breakeven point (before increase in cost of direct materials) = $26,000 / ($60 - $35) = 1040 units
Breakeven point (after increase in cost of direct materials) = $26,000 / ($60 - $40) = 1300 units
Increase in breakeven point = 1300 - 1040 = 260 units

Gitli Company Sells Its Product for $60 and Has Variable