Jacob Inc. has fixed costs of $240,000, the unit selling price is $32, and the unit variable costs are $20. What are the old and new break-even sales (units) if the unit selling price increases by $4?
A) 7,500 units and 6,667 units
B) 20,000 units and 30,000 units
C) 20,000 units and 15,000 units
D) 12,000 units and 15,000 units

Question

Quizplus · Accepted Answer

To calculate the old break-even point (BEP), we use the formula:

BEP = Fixed Costs / (Unit Selling Price - Unit Variable Costs)

BEP = $240,000 / ($32 - $20)

BEP = 20,000 units

To calculate the new break-even point after the unit selling price increases by $4, we use the same formula:

BEP = Fixed Costs / (Unit Selling Price - Unit Variable Costs)

BEP = $240,000 / ($36 - $20)

BEP = 15,000 units

Therefore, the old break-even sales (units) is 20,000 units and the new break-even sales (units) is 15,000 units. Therefore, the best choice is C.

Jacob Inc Has Fixed Costs of $240,000, the Unit Selling Price