Martin Corporation currently sells 180,000 units per year at a price of $7.00 per unit;its variable cost is $4.20 per unit;and fixed operating costs are $400,000.Martin is considering expanding into two additional states which would increase its fixed costs to $650,000 and would increase its variable unit cost to an average of $4.48 per unit.If Martin expands it expects to sell 270,000 units at $7.00 per unit.By how much will Martin's operating breakeven sales dollar level change?
A) $183,333
B) $456,500
C) $805,556
D) $910,667
E) $1,200,000

Question

Quizplus · Accepted Answer

The operating breakeven sales dollar level is calculated as Fixed Costs / (1 - Variable Cost per Unit / Price per Unit). Before expansion, the breakeven point is $400,000 / (1 - $4.20 / $7.00) = $1,000,000. After expansion, it becomes $650,000 / (1 - $4.48 / $7.00) = $1,805,556. The change is $1,805,556 - $1,000,000 = $805,556.

Martin Corporation Currently Sells 180,000 Units Per Year at a Price