Question

5.For the past year, Chandler Company had fixed costs of $70,000, unit variable costs of $32, and a unit selling price of $40. For the coming year, no changes are expected in revenues and costs, except that property taxes are expected to increase by $10,000. Determine the break-even sales (units) for: (12 pts ~ 6 pts each) a.The past year: b.The coming year

Answer 1

Answer:

a.

Break even in units = 8750 units

b.

Break even in units = 10000 units

Explanation:

The break even in units is the number of units that a business must sell in order to for its total revenue to be equal to total costs and for it to break even. The break even in units is calculated as follows,

Break even in units = Fixed Costs / Contribution margin per unit

Where,

Contribution margin per unit = Selling price per unit - Variable cost per unit

a. Past Year

Break even in units = 70000 / (40 - 32)

Break even in units = 8750 units

b. Coming Year

The property taxes which are a fixed cost will increase by $10000. Thus total fixed cost for coming year will be = 10000 + 70000 = 80000

Break even in units = 80000 / (40 - 32)

Break even in units = 10000 units