Question

Gall manufacturing sells a product for $50 per unit. The fixed costs are $840,000 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 $20,000 and variable costs will be 50% of the selling price. The new break – even point in units is
A) 42,000
B) 41,600
C) 41,200
D) 33,600

Answer 1

Answer:

The answer is B)41,600 units.

Explanation:

After the new- automated equipment's introduction, we have:

Fixed cost increased by $200,000, thus New fixed cost is: Current fixed cost + 200,000 = 840,000 + 200,000 = $1,040,000;

Variable cost is 50% of selling price, thus New variable cost is: Selling price x 50% =  50 x 50% = $25

Thus, New Contribution per one unit sold is: Selling price - Variable cost = 50 - 25 = $25.

New break-event points in units is: New Fixed cost/ New Contribution per one unit sold = 1,040,000/25 = 41,600 units.

Thus, the answer is B.