Question

A product has a contribution margin of $2.50 per unit and a selling price of $25 per unit. Fixed costs are $20,000. Assuming new technology increases the unit contribution margin by 50 percent but increases total fixed costs by $13,750, what is the new breakeven point in units?
A. 9,000 units
B. 13.500 units
C. 3,667 units
D. 3,333 units

Answer 1

Answer:

A. 9,000 units

Explanation:

The formula to compute the break even point is shown below:

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

where,  

New Fixed costs = $20,000 + $13,750 = $33,750

And, the contribution margin per unit would be

= $2.50 + $2.50 × 50%

= $2.50 + $1.25

= $3.75

Now put these values to the above formula

So, the units would be equal to

= $33,750 ÷ $3.75

= 9,000 units