Arquebus Company is owned and operated by a craftsman who makes replicas of historic firearms for museums, sportsmen and collectors. He is currently producing 40 flintlock muskets per month. Cost data are as follows: In June, the cost of the special kind of metal he uses went up considerably, and the variable cost per unit increased by $50 per unit. If volume and other factors remain constant, how will this affect the company's breakeven point in sales dollars?

Question

Arquebus Company is owned and operated by a craftsman who makes replicas of historic firearms for museums, sportsmen and collectors. He is currently producing 40 flintlock muskets per month. Cost data are as follows:  In June, the cost of the special kind of metal he uses went up considerably, and the variable cost per unit increased by $50 per unit. If volume and other factors remain constant, how will this affect the company's breakeven point in sales dollars?

Quizplus · Accepted Answer

To calculate the breakeven point in sales dollars, we need to first calculate the current breakeven point before the increase in variable cost per unit. Using the given cost data, the current breakeven point is:

Breakeven Point = Fixed Costs / (Price - Variable Costs per Unit)
Breakeven Point = $33,000 / ($1,200 - $550)
Breakeven Point = $33,000 / $650
Breakeven Point = $50,769.23

Now, with the increase in variable cost per unit by $50, the new variable cost per unit is $600. Substituting this value in the breakeven formula:

Breakeven Point = Fixed Costs / (Price - Variable Costs per Unit)
Breakeven Point = $33,000 / ($1,200 - $600)
Breakeven Point = $33,000 / $600
Breakeven Point = $55,000

The difference between the two breakeven points is $55,000 - $50,769.23 = $5,230.77. This means that the breakeven point in sales dollars will go up by $5,230.77, which is closest to choice A) $5,760 of sales revenue.

Arquebus Company Is Owned and Operated by a Craftsman Who