Question

7) A book publisher has fixed costs of $300,000 and variable costs per book of $8.00. The book sells for $23.00 per copy. a. How many books must be sold to break even? (Roundup your answer to the next whole number.) b. If the fixed cost increased, would the new break-even point be higher or lower? i. Higher ii. Lower iii. It would remain the same iv. There is insufficient information to answer this question c. If the variable cost per unit decreased, would the new break-even point be higher or lower? i. Higher ii. Lower iii. It would remain the same iv. There is insufficient information to answer this question

Answer 1

Answer:

a. $20,000

b. i. Higher

c.  ii. Lower

Explanation:

a. We know that the break even in units formula equals to

= (Fixed cost) ÷ (Selling price per unit - variable cost per unit)

= ($300,000) ÷ ($23 - $8)

= $300,000 ÷ 15

= $20,000

And, Contribution margin per unit = Selling price per unit - variable cost per unit

So, we use contribution margin per unit also.

b. Now if we assume that the fixed cost would be $400,000

So, the new break even equal to

= (Fixed cost) ÷ (Selling price per unit - variable cost per unit)

= ($400,000) ÷ ($23 - $8)

= $400,000 ÷ 15

= $26,666.67

So it is higher

c. Now if we assume that the new variable cost would be $5

So, the new break even equal to

= (Fixed cost) ÷ (Selling price per unit - variable cost per unit)

= ($300,000) ÷ ($23 - $5)

= $300,000 ÷ 18

= $16,666.67

So it is lower