Question

Mosaic Tile Company has estimated the following amounts for its next fiscal​ year: Total fixed costs ​ $832,000 Sales price per unit 44 Variable costs per unit 20 What will happen to the breakeven point​ (in units) if Mosaic can reduce fixed costs by​ $22,000? (Round your answer up to the nearest whole​ unit.) A. The breakeven point will decrease by​ 1,100 units. B. The breakeven point will decrease by 917 units. C. The breakeven point will increase by​ 1,100 units. D. The breakeven point will increase by 500 units.

Answer 1

Answer:

B. The break even point will decrease by 917 units

Explanation:

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

Break even point (in units) = Fixed cost ÷ (Selling price per unit -= variable cost per unit)

Or we can use,

Break even point (in units) = Fixed cost ÷ Contribution per unit

As the contribution per unit = Selling price per unit - variable cost per unit

So, the Break even point equals to

= $832,000 ÷ ($44 per unit - $20 per unit)

= $832,000 ÷ $24 per unit

= 34,667 units

And, if the fixed cost is reduced by $22,000

So, the new fixed cost = $832,000 - $22,000 = $810,000

Now the new break even point equals to

= $810,000 ÷ ($44 per unit - $20 per unit)

= $810,000 ÷ $24 per unit

= 33,750 units

Hence, The break even point will decreased by 917 units ($34,667 units - 33,750 units)