Flying Cloud Co. has the following operating data for its manufacturing operations:Unit selling price$ 250Unit variable cost100Total fixed costs840,000The company has decided to increase the wages of hourly workers which will increase the unit variable cost by 10%. Increases in the salaries of factory supervisors and property taxes for the factory will increase fixed costs by 4%. If sales prices are held constant, the next break-even point for Flying Cloud Co. will be
A) increased by 640 units
B) increased by 400 units
C) decreased by 640 units
D) increased by 800 units

Question

Flying Cloud Co. has the following operating data for its manufacturing operations:Unit selling price$ 250Unit variable cost100Total fixed costs840,000​The company has decided to increase the wages of hourly workers which will increase the unit variable cost by 10%. Increases in the salaries of factory supervisors and property taxes for the factory will increase fixed costs by 4%. If sales prices are held constant, the next break-even point for Flying Cloud Co. will be
A) increased by 640 units
B) increased by 400 units
C) decreased by 640 units
D) increased by 800 units

Quizplus · Accepted Answer

The original unit variable cost is $100, with a 10% increase, it becomes $110. The original fixed costs are $840,000, with a 4% increase, they become $873,600. The contribution margin per unit is now $140 ($250 - $110). The new break-even point in units is $873,600 / $140 = 6,240 units. Originally, it was $840,000 / $150 = 5,600 units. The difference is 640 units, indicating the break-even point has increased by 640 units.