Nonesuch Company sells only one product at a regular price of $7.50 per unit. Variable expenses are 60 percent of sales and fixed expenses are $30,000. Management has decided to decrease the selling price to $6.00 in hopes of increasing its volume of sales.
What is the sales dollars level required to break even at the old price of $7.50?

Question

Quizplus · Accepted Answer

To find the break-even sales dollars at the old price, calculate the contribution margin per unit and then use it to find the break-even point in sales dollars. Contribution margin per unit = Selling price - Variable cost per unit = $7.50 - (60% of $7.50) = $3.00. Break-even point in units = Fixed expenses / Contribution margin per unit = $30,000 / $3.00 = 10,000 units. Break-even sales dollars = Break-even units * Selling price = 10,000 * $7.50 = $75,000.

Nonesuch Company Sells Only One Product at a Regular Price