The manager at the Yarn Factory changed the price of spools to increase sales.The current price per unit is $13.85 per box of 500 spools;and,the forecasted lower price per unit to increase sales is $9.95 per box of 500 spools.If the variable expenses remain at $9.14 and the fixed expenses remain $3,400 how many units must be sold at the new price to breakeven?
Compute the contribution margin per unit using the old sales price.Next,compute the contribution margin per unit using the new sales price.Use the new unit contribution margin to compute breakeven sales in units.What is the breakeven sales in units?

Question

Quizplus · Accepted Answer

A)
Current sales price per unit = $13.85 - variable cost per unit = $9.14 = $4.71 current contribution margin per unit
Proposed sales price per unit = $9.95 - variable cost per unit = $9.14 =contribution margin per unit = $0.81
Fixed expenses = $3,400 + operating income = $0/ current contribution margin = $4.71 = 721.87~722 units.Fixed expenses = $3,400 + operating income = $0/ proposed contribution margin = $0.81 = 4,197.53~4,198 units.

The Manager at the Yarn Factory Changed the Price of Spools