Question

Walters Corporation sells radios for $50 per unit. The fixed costs are $525,000 and the variable costs are 60% of the selling price. As a result of new automated equipment, it is anticipated that fixed costs will increase by $125,000 and variable costs will be 50% of the selling price. The new break-even point in units is:

Answer 1

Answer:

26,000

Explanation:

Given that,

Selling price = $50 per unit

Fixed costs = $525,000

Variable costs:

= 60% of the selling price

= 0.6 × $50

= $30 per unit

New fixed cost:

= $525,000 + $125,000

= $650,000

New variable costs:

= 50% of the selling price

= 0.5 × $50

= $25 per unit

Contribution margin per unit:

= Selling price - Variable cost

= $50 - $25

= $25

New break-even point in units:

= New fixed cost ÷ Contribution margin per unit

= $650,000 ÷ $25

= 26,000

Answer 2

Answer:

26,000 units  

Explanation:

The computation of the new break even point in units is shown below:

= (Fixed expenses ) ÷ (Contribution margin per unit)  

where,  

Fixed cost = $525,000 + $125,000 = $650,000

Contribution margin per unit = Selling price per unit - Variable expense per unit

= $50 - $25

= $25

So, the break even point in units is

= $650,000 ÷ $25

= 26,000 units