A product sells for $30 per unit and has variable costs of $18 per unit. The fixed costs are $720,000. If the variable costs per unit were to decrease to $15 per unit and fixed costs increase to $900,000, and the selling price does not change, break-even point in units would:
A) Increase by 20,000.
B) Equal 6,000.
C) Increase by 6,000.
D) Decrease by 20,000.
E) Not change.

Question

Quizplus · Accepted Answer

The break-even point in units is calculated by dividing the fixed costs by the contribution margin per unit (selling price - variable costs). Initially, the contribution margin is $30 - $18 = $12. With the initial fixed costs of $720,000, the break-even point is $720,000 / $12 = 60,000 units. After the changes, the contribution margin becomes $30 - $15 = $15, and the new fixed costs are $900,000, making the new break-even point $900,000 / $15 = 60,000 units. Thus, the break-even point does not change.

A Product Sells for $30 Per Unit and Has Variable