Boss Enterprises currently sells its products for $40 per unit. Management is contemplating a 40% increase in the selling price for the next year. Variable costs are currently 40% of sales revenue and are not expected to change next year. Fixed expenses are $192,000 per year. What is the breakeven point in units at the current selling price?

Question

Quizplus · Accepted Answer

The breakeven point in units is calculated by dividing the total fixed expenses by the contribution margin per unit. The contribution margin per unit is the selling price per unit minus the variable cost per unit. Currently, the selling price is $40, and variable costs are 40% of $40, which is $16. Therefore, the contribution margin per unit is $40 - $16 = $24. The breakeven point is $192,000 / $24 = 8,000 units.

Boss Enterprises Currently Sells Its Products for $40 Per Unit