American Corporation currently sells its products for $200 per unit.Management is contemplating a 20% increase in the selling price for the next year.Variable costs are currently 40% of sales revenue and are not expected to change next year.Fixed expenses are $120,000 per year. If fixed costs increase 10% next year,and the new selling price per unit goes into effect,how many units will need to be sold to breakeven?

Question

Quizplus · Accepted Answer

To find the breakeven point, calculate the new selling price, variable costs, and fixed costs. New selling price = $200 + 20% of $200 = $240. Variable cost per unit = 40% of $240 = $96. New fixed costs = $120,000 + 10% of $120,000 = $132,000. Breakeven units = Fixed Costs / (Selling Price - Variable Cost) = $132,000 / ($240 - $96) = 825 units.

American Corporation Currently Sells Its Products for $200 Per Unit