Thomas Company had the following information: Suppose Thomas could reduce setup costs by £500 per setup and could reduce the number of engineering hours needed to 1,216 2/3 hours. How many units must be sold to break even in this case?

A) 30,000 units
B) 25,050 units
C) 25,650 units
D) 11,250 units

Question

Thomas Company had the following information: Suppose Thomas could reduce setup costs by £500 per setup and could reduce the number of engineering hours needed to 1,216 2/3 hours. How many units must be sold to break even in this case?

A) 30,000 units 
B) 25,050 units 
C) 25,650 units 
D) 11,250 units

Quizplus · Accepted Answer

To calculate the break-even point, we need to use the formula:

Break-even point = Fixed costs ÷ (Selling price per unit - Variable cost per unit)

Given information:
- Original fixed costs = £100,000
- Original selling price per unit = £10
- Original variable cost per unit = £4
- New fixed costs = £100,000 - £500 = £99,500
- New variable cost per unit = £4 - (1,216 2/3 hours × £0.03 per engineering hour ÷ 10 units per hour) = £3.6167 per unit

Substituting into the formula:

Break-even point = £99,500 ÷ (£10 - £3.6167) ≈ 25,649.6 units

Therefore, the answer is C, 25,650 units (rounded up to the nearest whole unit).

Thomas Company Had the Following Information: Suppose Thomas Could Reduce