Green Beans Corporation currently has a sales price of $2.00 per can of organic green beans with a variable cost of $0.75 per can. The company currently sells 50,000 cans a month and hopes that increased advertising of $3,000 will increase its sales by 5,000 cans. The company currently has $20,000 in fixed costs per month. How will this change affect its breakeven point in terms of cans?

Question

Quizplus · Accepted Answer

First, let's calculate the current breakeven point:

Breakeven point (in units) = Total fixed costs / (Sales price per unit - Variable cost per unit)
Breakeven point = $20,000 / ($2.00 - $0.75)
Breakeven point = 16,667 cans

So currently, Green Beans Corporation needs to sell 16,667 cans to breakeven.

Now let's calculate the breakeven point after the increase in sales:

New total sales = current sales + increase in sales
New total sales = 50,000 + 5,000
New total sales = 55,000 cans

New fixed costs (including the increase in advertising) = current fixed costs + increase in advertising
New fixed costs = $20,000 + $3,000
New fixed costs = $23,000

Breakeven point (in units) = New total fixed costs / (Sales price per unit - Variable cost per unit)
Breakeven point = $23,000 / ($2.00 - $0.75)
Breakeven point = 32,000 cans

Therefore, Green Beans Corporation will have to sell an additional 32,000 - 50,000 = 2,400 more cans to breakeven after the increase in advertising.

So the answer is B) The company will have to sell 2,400 more cans to breakeven.

Green Beans Corporation Currently Has a Sales Price of $2