Answer:
Part (a)
At the break-even position, the Income Statement is as under:
Sales 12500 * $180 $2,250,000
Variable costs 12500 * $135 <u>(</u><u>$1,687,500</u><u>)</u>
Contribution Margin $562,500
Fixed Cost <u>($562,500)</u>
Profit for the year $0
Part (B)
The sales required to breakeven due to increased fixed cost is $2,790,000
Explanation:
The breakeven point at normal fixed costs is:
Breakeven Point = Fixed Cost / Contribution per unit
Putting values we have:
Breakeven Point = $562,500 / ($180 - $135) = 12500 Units.
If the fixed costs increases by $135,000 which means the fixed cost becomes $697,500 then the breakeven point increases to:
Breakeven Point = $697,500 / ($180-135) = 15500 Units
The Sales required in dollars to breakeven on this new fixed cost level is:
Breakeven Sales = 15500 Units * 180 = $2,790,000
