Answer:
A) to calculate the break even point we can use the following:
break even point = fixed costs / contribution margin
break even point = 125,000 / (9 - 6.5) = 125,000 / 2.5 = 50,000 units
The company must sell over 50,000 units to make a profit
B) if the unit production costs increase 10%, the new unit cost will be $7.15, and the new break even point will be: 125,000 / (9 - 7.15) = 125,000 / 1.85 = 67,567.6 which we round up to 67,568 units.
Now the company must sell at least 67,568 units to make a profit
C) If the company wants to increase its product price to a level where the break even point is 50,000 units, then the new price should be $9.65.
The contribution margin must be $2.5, so if the production costs are $7.15, we just add $2.5 to get $9.65 per unit.
