Question

Assume the sales price is $10 per unit, variable cost is $5 per unit, and fixed cost is $1,000. How would the break-even point in units change if the variable cost increased to $8 per unit?

Answer 1

Answer:

it would increase by 300 units

Explanation:

Breakeven quantity are the number of  units produced and sold at which net income is zero

Breakeven quantity = fixed cost / price – variable cost per unit

Fixed costs are costs that do not vary with output. e,g, rent, mortgage payments

If production is zero or if production is a million, Mortgage payments do not change - it remains the same no matter the level of output.  

Hourly wage costs and payments for production inputs are variable costs

Variable costs are costs that vary with production

If a producer decides not to produce any output, there would be no need to hire labour and thus no need to pay hourly wages.

Initial breakeven = 1000 / (10 - 5) = 200

New breakeven = 1000 /(10 - 8) = 500

Change in breakeven = 500 - 200 = 300

Answer 2

Answer:

Change in break-even point = 300 units

Explanation:

Given:

Sales price = $10 per unit

Variable cost = $5 per unit

Fixed cost = $1,000

Find;

Change in break-even point in units when variable cost increased to $8 per unit

Computation:

Break-even point = Fixed cost / [sales - VC]

Actual break-even point = 1,000 / [10 - 5]

Actual break-even point = 200 units

New break-even point = 1,000 / [10 - 8]

New break-even point = 500 units

Change in break-even point = 500 - 200

Change in break-even point = 300 units