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?

Question

Quizplus · Accepted Answer

The breakeven point in units is calculated using the formula: Breakeven Point in Units = Total Fixed Costs / (Selling Price per Unit - Variable Cost per Unit). With a 20% increase, the new selling price becomes $30 ($25 * 1.20). Variable costs are 30% of sales, so for the new selling price, they are $9 per unit ($30 * 0.30). Fixed costs increase by 10%, making them $165,000 ($150,000 * 1.10). Thus, the breakeven point is 7,858 units ($165,000 / ($30 - $9)).

Belton Company Currently Sells Its Products for $25 Per Unit