Spare Cash Ltd manufactures a single product. The product sells for $20. The variable manufacturing cost per unit is $4 and the variable selling cost is $4 per unit. Spare Cash incurs monthly fixed costs of $200,000 for manufacturing and $140,000 for administration and selling. Spare Cash is considering changes to its production and distribution procedures. If the changes are made, total variable costs (manufacturing and selling) will be $7 and total fixed costs (manufacturing, administration, and selling) will be $350,000 per month. The selling price will remain at $20. If the changes are made, the number of units required to break even will be:

Question

Quizplus · Accepted Answer

The break-even point is the number of units that must be sold to cover all costs. With the changes, the total variable cost per unit will increase to $7, and the total fixed costs will increase to $350,000. This means that the break-even point will be higher than before.

Spare Cash Ltd Manufactures a Single Product