Question

Management at the Forrest Company currently sells its products for $ 225 per unit and is contemplating a 40​% increase in the selling price for the next year. Variable costs are currently 25​% of sales revenue and are not expected to change in dollar amount on a per unit basis next year​ (the company will still pay the same variable cost per​ unit). Fixed expenses are $ 133 comma 500 per year. If fixed costs were to decrease 10​% during the current year and the new selling price goes into​ effect, how many units will need to be sold to​ breakeven? A. 465 units

Answer 1

Answer:

464.35 units

Explanation:

The computation of units will need to be sold to​ break-even is shown below:-

Variable cost per unit = 25% × $225

= $56.25 per unit

Revised selling price = $225 + 40% increase

= $225 + $225 x 40%

= $315 per unit

Contribution per unit = Selling price per unit - Variable cost per unit

= $315 - $56.25

= $258.75

Current fixed costs = $133,500

Revised fixed cost = $133,500 - 10% × $133,500

= $120,150

Number of units required to break even  = Revised fixed cost ÷ Contribution per unit

= $120,150 ÷ $258.75

= 464.35 units