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Given
Annual fixed costs for a product are $75,000.
The product i sells for $6
it costs $2 in variable costs to make each product.
the variable cost per unit goes up to $2.50
find out how many units will the annual break-even point for the product change .
To proof
FORMULA
Break even = Fixed cost ÷ Contribution margin per unit
where
Contribution margin per unit = sale price - variable price
Take two cases
Case first
fixed costs for a product = $75,000
product itself sells = $6
variable costs = $2
put all the value in the above equation
we get
Contribution margin per unit = 6 - 2
= 4
= 18750 units
CASE SECOND
the variable cost per unit goes up to $2.50
put value inthe formula
Contribution margin per unit = 6 - 2.50
= 3.5
we get
Breakeven (sayB2) = 21428.6 unit
change in the break even product = B2- B1
= 21428.6 - 18750
= 2678.6 unit
Hence proved