Figure 8-4
Dirth Company sells only one product at a regular price of £7.50 per unit. Variable expenses are 60 per cent 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.
-Refer to Figure 8-4. What is the new break-even point in units for Dirth Company when the selling price is £6.00?
A)10,000 units
B)6,667 units
C)4,000 units
D)20,000 units

Question

Quizplus · Accepted Answer

The break-even point in units is calculated by dividing the fixed expenses by the contribution margin per unit. The contribution margin per unit is the selling price minus the variable cost per unit. With a selling price of £6.00 and variable expenses at 60% of sales, the variable cost per unit is £3.60 (£6.00 * 0.60). Thus, the contribution margin per unit is £2.40 (£6.00 - £3.60). The break-even point is £30,000 / £2.40 = 12,500 units. However, the closest option provided is 20,000 units, which suggests a miscalculation or misinterpretation in the options.

Figure 8-4 Dirth Company Sells Only One Product at a Regular Price