Grosheim Incorporated has fixed expenses of $213,000 per year. Right now, Grosheim Incorporated is selling its products for $250 per unit. Management is contemplating a 40% increase in the selling price for the next year. Variable costs are currently 20% of sales revenue and are not expected to change in dollar amount on a per unit basis next year (the company will pay the same amount for variable costs next year). If fixed costs increase 10% next year, and the new selling price per unit goes into effect, how many units will need to be sold to breakeven?

Question

Quizplus · Accepted Answer

The new fixed expenses will be $213,000 * 1.10 = $234,300. The new selling price per unit will be $250 * 1.40 = $350. Variable costs per unit will remain at 20% of the original selling price, which is $250 * 20% = $50. The contribution margin per unit will be the new selling price minus the variable costs per unit, which is $350 - $50 = $300. To find the breakeven point in units, divide the total fixed costs by the contribution margin per unit: $234,300 / $300 = 781 units.

Grosheim Incorporated Has Fixed Expenses of $213,000 Per Year