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NISA [10]
2 years ago
14

Mae Company sells its product for $12 per unit and has variable costs of $8 per unit. Total fixed costs are $60,000. Suppose var

iable costs increase by 10% due to an increase in the cost of direct materials. What will be the effect on the breakeven point in units
Business
1 answer:
alexdok [17]2 years ago
4 0

Answer:

Effect : Increase in Break Even units by 3,750 units to 18,750 units

Explanation:

Break even point is the level of activity at which a firm makes neither a profit nor a loss

Break even Point (Units) = Fixed Costs ÷ Contribution per unit

where,

Contribution per unit = Selling price per unit - Variable Costs per unit

                                    = $12 - $8

                                     = $4

Therefore,

<u>Before Increase</u>

Break even Point (Units) = $60,000 ÷ $4 = 15,000

<u>After Increase</u>

New Contribution = $12 - ($8× 1.10)

                              = $3.20

Therefore,

Break even Point (Units) = $60,000 ÷ $3.20 = 18,750

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