Taizhong Semiconductor Company mass produces several common computer chips. Type A sells for $1.20 per unit. Variable cost is $0.95 per unit and the fixed costs are $32,000 per month. Taizhong currently sells 140,000 units per month. Under intense pressure to boost profits, the production manager has a plan which will reduce fixed costs by 10%. How will this affect the breakeven point in terms of sales revenue?

Question

Quizplus · Accepted Answer

B) Calculations:
$1.20 - $0.95 = $0.25
$32,000/$0.25 = 128,000
128,000 × $1.20 = $153,600
$32,000 × 10% = $3,200
($32,000 - $3,200)/$0.25 = 115,200
115,200 × $1.20 = $138,240
$153,600 - $138,240 = $15,360

Taizhong Semiconductor Company Mass Produces Several Common Computer Chips