Question

Juniper Enterprises sells handmade clocks. Its variable cost per clock is $6, and each clock sells for $24. The company’s fixed costs total $6,660. Suppose that Juniper’s variable costs decrease by $0.50.
What is its new break-even point?

Answer 1

Answer

356.75 ≅ 357 Clocks

Explanation

VC = Variable cost per clock = $6 per clock

SP = Selling price per clock = $24 per clock

TFC = Total Fixed Costs = $6,600

If the Variable Cost decreases by $0.50

the the new variable cost = $VC^{*}$ = $6 - $0.5 = $5.5 per clock

Break-Even Point (Units) = Fixed Costs ÷ (Sales per Unit – Variable Cost per Unit)

= $6,600 ÷ ( $24 per clock - $5.5 per clock)

= 356.75 ≅ 357 Clocks