Question

Gladstorm Enterprises sells a product for $60 per unit. The variable cost is $20 per unit, while fixed costs are $85,000. Determine the following: Round your answers to the nearest whole number. a. Break-even point in sales units units b. Break-even point in sales units if the selling price increased to $80 per unit units

Answer 1

Answer:

(a) 2,125 units

(b) 1,417 units

Explanation:

Given that,

Selling price = $60 per unit

Variable cost = $20 per unit

Fixed costs = $85,000

(a) Contribution margin per unit:

= Selling price - Variable cost

= $60 - $20

= $40

Break-even point in sales units:

= Fixed costs ÷ Contribution margin per unit

= $85,000 ÷ $40

= 2,125 units

(b) If the selling price increased to $80 per unit,

Contribution margin per unit:

= Selling price - Variable cost

= $80 - $20

= $60

Break-even point in sales units:

= Fixed costs ÷ Contribution margin per unit

= $85,000 ÷ $60

= 1,417 units