Dirth Company sells only one product at a regular price of £7.50 per unit. Variable expenses are 60 percent of sales and fixed expenses are £30,000. Management has decided to decrease the selling price to £6.00 in hopes of increasing its volume of sales. What is the new break-even point in units for Dirth Company when the selling price is £6.00?
A) 10,000 units
B) 6,667 units
C) 4,000 units
D) 20,000 units

Question

Quizplus · Accepted Answer

To find the break-even point in units, use the formula: Break-even point (units) = Fixed Expenses / (Selling Price per Unit - Variable Cost per Unit). With a selling price of £6.00 and variable expenses at 60% of sales, the variable cost per unit is £3.60. Thus, the break-even point is £30,000 / (£6.00 - £3.60) = 20,000 units.

Dirth Company Sells Only One Product at a Regular Price