Management at the Forrest Company currently sells its products for $225 per unit and is contemplating a 40% increase in the selling price for the next year. Variable costs are currently 25% of sales revenue and are not expected to change in dollar amount on a per unit basis next year (the company will still pay the same variable cost per unit). Fixed expenses are $119,000 per year. If fixed costs were to decrease 10% during the current year and the new selling price goes into effect, how many units will need to be sold to breakeven?

Question

Quizplus · Accepted Answer

The new selling price per unit = $225 * 140% = $315. Variable costs per unit = $225 * 25% = $56.25. New fixed costs = $119,000 * 90% = $107,100. Break-even point in units = Fixed Costs / (Selling Price per Unit - Variable Cost per Unit) = $107,100 / ($315 - $56.25) = $107,100 / $258.75 ≈ 414 units.

Management at the Forrest Company Currently Sells Its Products for $225