Ryan Company manufactures a single product. The product sells for $10. The variable manufacturing cost per unit is $2 and the variable selling cost is $2 per unit. Ryan incurs monthly fixed costs of $100,000 for manufacturing and $140,000 for administration and selling. Ryan is considering changes to its production and distribution procedures. If the changes are made, total variable costs (manufacturing and selling) will be $3 and total fixed costs (manufacturing, administration, and selling) will be $350,000 per month. The selling price will remain at $10. If the changes are made, the number of units required to break even will be

Question

Quizplus · Accepted Answer

The break-even point is calculated as fixed costs divided by the contribution margin per unit. Initially, the contribution margin is $6 ($10 - $4), and fixed costs are $240,000. After changes, the contribution margin is $7 ($10 - $3), but fixed costs increase to $350,000. The increase in fixed costs is proportionally larger than the increase in contribution margin, resulting in a higher break-even point.

Ryan Company Manufactures a Single Product