Question

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

Answer 1

Answer:

E) BEP (units) does not change

Explanation:

Use the following formula to calculate Break-even point in units:

BEP (units) = Fixed cost / (unit selling price - unit variable costs)

1) BEP (Units) before the change in costs is:

BEP (units) = 720000 / (30 -18) = 60,000 units

2) BEP (Units) after the change in costs is:

BEP (units) = 900000 / (30-15) = 60000units

--> BEP (units) does not change