Elizabeth Langley Enterprises sells its product for $12 per unit and has variable costs of $10 per unit.Total fixed costs are $40,000.Suppose variable costs increase by 10% due to an increase in the cost of direct materials.What will be the effect on the breakeven point in units?

Question

Quizplus · Accepted Answer

The breakeven point in units is calculated as Fixed Costs / (Selling Price per Unit - Variable Cost per Unit). Initially, it is 40,000 / (12 - 10) = 20,000 units. With a 10% increase in variable costs, the new variable cost is $11, so the breakeven point becomes 40,000 / (12 - 11) = 40,000 units.

Elizabeth Langley Enterprises Sells Its Product for $12 Per Unit