Bates Company currently produces and sells 4,000 units of a product that has a contribution margin of $5 per unit.The company sells the product for a sales price of $20 per unit.Fixed costs are $20,000.The company has recently invested in new technology and expects the variable cost per unit to fall to $12 per unit.The investment is expected to increase fixed costs by $15,000.After the new investment is made,how many units must be sold to break even?
A) 2,917 units
B) 4,375 units
C) 7,000 units
D) 4,000 units

Question

Quizplus · Accepted Answer

After the investment, the contribution margin per unit is $8 ($20 - $12). The new fixed costs are $35,000 ($20,000 + $15,000). To break even, the company must sell 4,375 units ($35,000 / $8).

Bates Company Currently Produces and Sells 4,000 Units of a Product