Martin Company currently sells its products for $190 per unit. Management is contemplating a 10% increase in the selling price for the next year. Variable costs are currently 20% of sales revenue and are not expected to change next year. Fixed expenses are $100,000 per year. If fixed costs increase 30% 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 selling price per unit will be $190 + ($190 * 10%) = $209. Variable costs per unit at 20% of the new selling price will be $209 * 20% = $41.8. Fixed costs will increase by 30%, making them $100,000 + ($100,000 * 30%) = $130,000. The contribution margin per unit will be the new selling price minus variable costs, which is $209 - $41.8 = $167.2. To find the break-even point in units, divide the total fixed costs by the contribution margin per unit: $130,000 / $167.2 ≈ 777.6, which rounds to 778 units, but since this option is not available, it seems there was a mistake in my calculation. Re-evaluating with the correct approach: The correct break-even point calculation should consider the accurate interpretation of the given options and the calculation method.

Martin Company Currently Sells Its Products for $190 Per Unit