Dirth Company sells only one product at a regular price of $7.50 per unit.Variable expenses are 60 percent 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.
-What is the sales dollars level required to break even at the old price of $7.50?

Question

Dirth Company sells only one product at a regular price of $7.50 per unit.Variable expenses are 60 percent 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. 
-What is the sales dollars level required to break even at the old price of $7.50?

Quizplus · Accepted Answer

To calculate the sales dollars level required to break even, we need to use the formula:

Break-even point (in units) = fixed expenses / contribution margin per unit

Contribution margin per unit = selling price per unit - variable expenses per unit

At the old selling price of $7.50 per unit, the contribution margin per unit is:

$7.50 - ($7.50 x 60%) = $3.00

So, the break-even point in units is:

$30,000 / $3.00 = 10,000 units

To calculate the sales dollars level required to break even, we multiply the break-even point in units by the selling price per unit:

10,000 units x $7.50 per unit = $75,000

Therefore, the answer is D) $75,000

Dirth Company Sells Only One Product at a Regular Price