Flash Corporation management has budgeted the following amounts for its next fiscal year: $$\begin{array} { | l | r | }
\hline \text { Total fixed expenses } & \$ 480,000 \
\hline \text { Sale price per unit } & \$ 55 \
\hline \text { Variable expenses per unit } & \$ 25 \
\hline
\end{array}$$ If Flash Corporation can reduce fixed expenses by $20,000,by how much can variable expenses per unit increase and still allow the company to maintain the original breakeven sales in units?

Question

Flash Corporation management has budgeted the following amounts for its next fiscal year: $$\begin{array} { | l | r | } 
\hline \text { Total fixed expenses } & \$ 480,000 \
\hline \text { Sale price per unit } & \$ 55 \
\hline \text { Variable expenses per unit } & \$ 25 \
\hline
\end{array}$$ If Flash Corporation can reduce fixed expenses by $20,000,by how much can variable expenses per unit increase and still allow the company to maintain the original breakeven sales in units?

Quizplus · Accepted Answer

The original breakeven point is calculated by dividing total fixed expenses by the contribution margin per unit (sale price - variable expenses). With a $20,000 reduction in fixed expenses, the new breakeven point allows for an increase in variable expenses by $1.25 while maintaining the same breakeven sales in units.

Flash Corporation Management Has Budgeted the Following Amounts for Its