Question

Laguna Print makes advertising hangers that are placed on doorknobs. It charges $0.14 and estimates its variable cost to be $0.10 per hanger. Laguna’s total fixed cost is $2,921 per month, which consists primarily of printer depreciation and rent. Suppose that the cost of paper has increased and Laguna’s variable cost per unit increases to $0.117 per hanger.

Calculate its new break-even point assuming this increase is not passed along to customers.

Answer 1

Answer:

127,000

Explanation:

Data provided

Selling price = $0.14

Variable cost = $0.117

Fixed cost = $2,921

The computation of new break-even point is shown below:-

Contribution per unit = Selling price - Variable cost

= $0.14 - $0.117

= $0.023

Break even point = Fixed cost ÷ Contribution per unit

= $2,921 ÷ $0.023

= 127,000

Therefore, for computing the new break even point we simply divide fixed cost with contribution per unit.