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,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. After the changes, it becomes $30 - $15 = $15. The initial fixed costs are $720,000, and after the change, they are $900,000. Initially, the break-even point is $720,000 / $12 = 60,000 units. After the changes, it is $900,000 / $15 = 60,000 units. Thus, the break-even point does not change.

A Product Sells for $30 Per Unit and Has Variable