Question

Break-Even Sales Currently, the unit selling price of a product is $7,520, the unit variable cost is $4,400, and the total fixed costs are $23,400,000. A proposal is being evaluated to increase the unit selling price to $8,000. a. Compute the current break-even sales (units). units b. Compute the anticipated break-even sales (units), assuming that the unit selling price is increased and all costs remain constant. units

Answer 1

Answer:

Current Break Even point = 6,500 units

Break Even point in Unit Sale = 7,500 units

Explanation:

The computation of break-even sales is shown below:-

Sale price = $8,000

Variable expense = $4,400

Contribution margin = Sale price - Variable expenses

= $8,000 - $4,400

= $3,600

Fixed expenses = $23,400,000

Current Break Even point = Fixed expenses ÷ Contribution margin

= $23,400,000 ÷ $3,600

= 6,500 units

Therefore for computing the break even point we simply divide contribution margin by fixed expenses

b. Sale price = $7,520

Variable expense = $4,400

Contribution margin =$7,520 - $4,400

= $3,120

Fixed expenses plus desired profit = $23,400,000

Break Even point in Unit Sale = Fixed expenses ÷ Contribution margin

= $23,400,000 ÷ $3,120

= 7,500 units

So, for computing the break even point we simply divide contribution margin by fixed expenses