Question

Break-even point Currently, the unit selling price of a product is $160, the unit variable cost is $120, and the total fixed costs are $725,000. A proposal is being evaluated to increase the unit selling price to $170.
A. Compute the current break-even sales (units).
B. Compute the anticipated break-even sales (units), assuming that the unit selling price is increased and all costs remain constant.

Answer 1

Answer:

A. 18,125 units

B. 14,500 units

Explanation:

Break -even is the level of activity where a firm neither makes a profit nor a loss.

Break-even sales (units) = Fixed Cost ÷ Contribution per unit

                                        =  $725,000 ÷ ( $160 - $120)

                                        =  18,125 units

New Break-even sales (units) = Fixed Cost ÷ Contribution per unit

                                                 =  $725,000 ÷ ( $170- $120)

                                                 =  14,500 units