Joseph Company has variable costs of $80 per unit,total fixed costs of $200,000,and a break-even point of 5,000 units.If the variable cost per unit decreases by $8,how many units must Joseph Company sell to break even?
A) 2,778 units
B) 2,500 units
C) 6,250 units
D) 4,167 units

Question

Quizplus · Accepted Answer

The original contribution margin per unit is the selling price minus the variable cost per unit. At the break-even point, total sales equal total costs. With 5,000 units to break even, the total sales revenue at break-even is $200,000 (fixed costs) + $400,000 (variable costs, which is 5,000 units * $80 per unit) = $600,000. The selling price per unit can be calculated as $600,000 / 5,000 units = $120. If the variable cost decreases by $8, the new variable cost per unit is $72. The new contribution margin per unit is $120 - $72 = $48. To find the new break-even point in units, divide the total fixed costs by the new contribution margin per unit: $200,000 / $48 = 4,166.67, which rounds to 4,167 units.

Joseph Company Has Variable Costs of $80 Per Unit,total Fixed