Falk Manufacturing management has budgeted the following amounts for its next fiscal year: $$\begin{array} { | l | r | }
\hline \text { Total fixed expenses } & \$ 400,000 \
\hline \text { Sale price per unit } & \$ 75 \
\hline \text { Variable expenses per unit } & \$ 25 \
\hline
\end{array}$$ If fixed expenses increase by 20%,to maintain the original breakeven sales in units,the sale price per unit would have to be:

Question

Falk Manufacturing management has budgeted the following amounts for its next fiscal year: $$\begin{array} { | l | r | } 
\hline \text { Total fixed expenses } & \$ 400,000 \
\hline \text { Sale price per unit } & \$ 75 \
\hline \text { Variable expenses per unit } & \$ 25 \
\hline
\end{array}$$ If fixed expenses increase by 20%,to maintain the original breakeven sales in units,the sale price per unit would have to be:

Quizplus · Accepted Answer

The original breakeven point is calculated by dividing total fixed expenses by the contribution margin per unit (sale price per unit - variable expenses per unit). If fixed expenses increase by 20%, the new fixed expenses are $480,000. To maintain the original breakeven sales in units, the contribution margin must also increase by 20%. This requires the sale price per unit to increase by 13.33% to maintain the same contribution margin ratio.

Falk Manufacturing Management Has Budgeted the Following Amounts for Its