Fantasmas Incorporated had the following information: $\begin{array}{lrr}
\text { Activity Driver } & \text { Unit Variable Cost } & \text { Level of Activity Drive } \
\text { Units sold } & \$ 20&-- \
\text { Setups } & 1,200 &60\
\text { Engineering hours } & 52&1,500\\
\text { Other data: }\
\text { Total fixed costs (traditional) } & \$ 600,000 \
\text { Total fixed costs }(A B C) & \$ 360,000 \
\text { Unit selling price } & \$60
\end{array}$
Suppose Fantasmas could reduce setup costs by $300 per setup and could reduce the number of engineering hours needed to 1,400 hours. How many units must be sold to break even in this case?

Question

Quizplus · Accepted Answer

To find the break-even point, calculate the total variable cost and fixed costs after the reductions. The new setup cost is $900 (1,200 - 300), and engineering hours are reduced to 1,400. Calculate the total variable cost: (Units sold * $20) + (Setups * $900) + (Engineering hours * $52). Then, add the fixed costs ($360,000) to find the total cost. Set this equal to the revenue (Units sold * $60) and solve for units sold. The correct answer is 12,170 units.

Fantasmas Incorporated Had the Following Information Suppose Fantasmas Could Reduce Setup Costs by $300 Per Setup