Question

A company sold 3,000 units at $500 each. Variable expenses were $350 per unit, and fixed expenses were $780,000. The same variable expenses per unit and fixed expenses are expected for the next year. If the company cuts selling price by 4%, what is the company’s break-even point in units for the next year? *

Answer 1

Answer:

6,000 units

Explanation:

We know that

Break even point in units = (Fixed expenses ) ÷ (Contribution margin per unit)  

where,  

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

The selling price would be

= $500 - $500 × 4%

= $500 - $20

= $480

And, the Variable expense per unit is $350

So, the contribution margin per unit would be

= $480 - $350

= $130

So, the break even point in  unit should be

= $780,000 ÷ $130 per units

= 6,000 units