Franklin Producers sells its core product for $5 per unit and has variable costs of $3 per unit. Total fixed costs are $22,000. Suppose variable costs increase by 30% due to an increase in the cost of direct materials. What will be the effect on the breakeven point in units?

Question

Quizplus · Accepted Answer

The breakeven point in units increases because the increase in variable costs per unit (from $3 to $3.9 after a 30% increase) reduces the contribution margin per unit, requiring more units to be sold to cover the same fixed costs of $22,000.

Franklin Producers Sells Its Core Product for $5 Per Unit