Question

Gitli Company sells its product for $ 55 and has variable cost of $ 30 per unit. The total fixed costs are $ 25 comma 000. What will be the effect on the breakeven point in units if variable cost increases by $ 5 due to an increase in the cost of direct​ materials? (Round your answer up to the nearest whole​ unit.) A. It will increase by 250 units. B. It will decrease by 175 units. C. It will decrease by 250 units. D. It will increase by 175 units.

Answer 1

Answer:

The correct answer is A.

Explanation:

Giving the following information:

Gitli Company sells its product for $ 55.

Unitary variable cost= $30 per unit.

The total fixed costs are $25,000.

New unitary cost= $35

To determine the effect, first, we need to calculate the  previous break-even point in units, using the following formula:

Break-even point= fixed costs/ contribution margin

Break-even point= 25,000/ (55 - 30)= 1,000 units

Now, with the new variable unitary cost:

Break-even point= 25,000/ (55 - 35)= 1,250 units