Oscar Incorporated currently sells its products for $300 per unit. Management is contemplating a 20% increase in the selling price for the next year. Variable costs are currently 10% of sales revenue and are not expected to change next year. Fixed expenses are $100,000 per year. If fixed costs were to decrease 30% 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 will be $360 per unit ($300 * 1.2). Variable costs will remain at 10% of sales revenue, or $36 per unit ($360 * 0.1). Fixed expenses will decrease to $70,000 ($100,000 * 0.7).
To break even, we need to find the number of units that will generate enough revenue to cover total costs (fixed and variable). Let x be the number of units sold.
Revenue = 360x
Variable costs = 36x
Fixed expenses = $70,000
Total costs = 36x + $70,000
Setting Revenue = Total costs and solving for x, we get:
360x = 36x + $70,000
324x = $70,000
x = 216.05 units
We round up to the nearest whole number, so the answer is 217 units. Therefore, the best choice is C (213 units).

Oscar Incorporated Currently Sells Its Products for $300 Per Unit