Arquebus Company is owned and operated by a craftsman who makes replicas of historic firearms for museums, sportsmen and collectors. He is currently producing 40 flintlock muskets per month. Cost data are as follows:
$$\begin{array} { l l }
\text { Price } & \$ 720 \text { per unit } \
\text { Variable cost } & \$ 470 \text { per unit } \
\text { Fixed costs } & \$ 8,000 \text { per month }
\end{array}$$
In June, the cost of the special kind of metal he uses went up considerably, and the variable cost per unit increased by $50 per unit.
- If volume and other factors remain constant, how will this affect the company's breakeven point in sales dollars?

Question

Arquebus Company is owned and operated by a craftsman who makes replicas of historic firearms for museums, sportsmen and collectors. He is currently producing 40 flintlock muskets per month. Cost data are as follows:
$$\begin{array} { l l } 
\text { Price } & \$ 720 \text { per unit } \
\text { Variable cost } & \$ 470 \text { per unit } \
\text { Fixed costs } & \$ 8,000 \text { per month }
\end{array}$$
In June, the cost of the special kind of metal he uses went up considerably, and the variable cost per unit increased by $50 per unit.
- If volume and other factors remain constant, how will this affect the company's breakeven point in sales dollars?

Quizplus · Accepted Answer

The increase in variable cost by $50 per unit raises the breakeven point. The contribution margin per unit decreases from $250 to $200, increasing the breakeven point in units. The new breakeven point in units is 40 units, which translates to an increase of $5,760 in sales revenue needed to break even.

Arquebus Company Is Owned and Operated by a Craftsman Who