Question

Concord Corporation sells a product for $50 per unit. The fixed costs are $760000 and the variable costs are 60% of the selling price. As a result of new automated equipment, it is anticipated that fixed costs will increase by $120000 and variable costs will be 50% of the selling price. The new break-even point in units is:

Answer 1

Answer:

35,200

Explanation:

The BEP which is the break even point is the point where the company's sales or revenue generated is equal to the cost incurred. As such, the BEP is the number of units that must be sold for the company to make neither a profit nor a loss.

Both sales and variable cost are dependent on the number of units sold.

The sales less the variable cost gives the contribution margin. The contribution margin less the fixed cost gives the net operating income.

With the purchase of the new equipment,

Fixed costs = $760000 + $120000

= $880,000

Variable cost per units

= 50% * $50

= $25

Let the number of units to break even be t

t(50 - 25) = 880,000

t = 880,000/25

= 35,200 units