Jasper Company has variable costs per unit of $20,fixed costs of $300,000,and a break-even point of 60,000 units.What will be the new break-even point in units if variable costs decrease by $3 per unit and fixed costs increase by $100,000?
A) 93,333 units
B) 33,333 units
C) 50,000 units
D) 200,000 units

Question

Quizplus · Accepted Answer

The original contribution margin per unit is the selling price per unit minus variable costs per unit. At the break-even point, total sales equal total costs. Given a break-even point of 60,000 units and variable costs of $20 per unit, we can calculate the total variable costs at the break-even point ($20 * 60,000 = $1,200,000). Adding the fixed costs of $300,000, the total sales at the break-even point are $1,500,000. If variable costs decrease by $3, the new variable cost per unit is $17. With an increase in fixed costs by $100,000, the new fixed costs are $400,000. To find the new break-even point in units, we use the formula: Break-even point in units = Fixed Costs / (Selling Price per Unit - Variable Cost per Unit). Assuming the selling price remains constant, the contribution margin per unit increases by $3 (due to the decrease in variable costs). The total sales needed to break even would still be $1,500,000 (since the selling price and the contribution margin per unit are unchanged, the total sales needed to cover the new fixed costs at the new contribution margin per unit remains the same). With the new fixed costs of $400,000 and the new variable cost per unit of $17, the break-even point in units can be recalculated, but given the unchanged total sales needed and the increased contribution margin, the actual calculation shows the break-even point would decrease, not increase, indicating a mistake in the initial calculation process. Correctly, the new break-even point should be calculated with the new fixed and variable costs to find the accurate answer.

Jasper Company Has Variable Costs Per Unit of $20,fixed Costs