Belton Company currently sells its products for $25 per unit. Management is contemplating a 20% increase in the sales price for next year. Variable costs are currently 30% of sales revenue and are not expected to change next year. Fixed expenses are $150,000. If fixed costs were to increase 10% next year, and the new sales price goes into effect, what is the breakeven point in units?
A) 9,429 units
B) 22,000 units
C) 7,333 units
D) 7,857 units

Question

Quizplus · Accepted Answer

The breakeven point in units can be calculated using the formula: Breakeven Point in Units = Total Fixed Costs / (Sales Price per Unit - Variable Cost per Unit). With a 20% increase, the new sales price per unit becomes $30 ($25 * 1.20). Variable costs remain at 30% of sales, so the new variable cost per unit is $9 ($30 * 0.30). Fixed costs increase by 10%, making them $165,000 ($150,000 * 1.10). Plugging these values into the formula gives: $165,000 / ($30 - $9) = 7,857 units.

Belton Company Currently Sells Its Products for $25 Per Unit