Question

Reynold's grocery has fixed costs of $251,000, the unit selling price is $22, and the unit variable costs are $21. what is the break-even sales (units) if the variable costs are decreased by $5?
a. 251,000 units
b. 11,952 units
c. 15,688 units
d. 41,833 units

Answer 1

Fixed costs: $251,000
Unit selling price: $22
Unit variable costs: $21
Decrease in variable costs: $5

Break-even = fixed costs/contribution margin
Contribution margin = selling price - unit variable cost
Break-even = $251,000/($22-$21)
Break-even = $251,000

New break-even = fixed costs/[(selling price)-(variable cost-decrease in variable cost)]
New break-even = $251,000/[($22) -($21-$5)]
New break-even = $251,000/$22-$16)
New break-even = $251,000/$6
New break-even = $43,833 units