Mosaic Tile Company has estimated the following amounts for its next fiscal year: $$\begin{array} { | l | r | }
\hline \text { Total fixed costs } & \$ 832,000 \
\hline \text { Sales price per unit } & 44 \
\hline \text { Variable costs per unit } & 20 \
\hline
\end{array}$$ What will happen to the breakeven point (in units)if Mosaic can reduce fixed costs by $22,000? (Round your answer up to the nearest whole unit.)
A) The breakeven point will decrease by 917 units.
B) The breakeven point will decrease by 1100 units.
C) The breakeven point will increase by 1100 units.
D) The breakeven point will increase by 500 units.

Question

Mosaic Tile Company has estimated the following amounts for its next fiscal year: $$\begin{array} { | l | r | } 
\hline \text { Total fixed costs } & \$ 832,000 \
\hline \text { Sales price per unit } & 44 \
\hline \text { Variable costs per unit } & 20 \
\hline
\end{array}$$ What will happen to the breakeven point (in units)if Mosaic can reduce fixed costs by $22,000? (Round your answer up to the nearest whole unit.)
A) The breakeven point will decrease by 917 units.
B) The breakeven point will decrease by 1100 units.
C) The breakeven point will increase by 1100 units.
D) The breakeven point will increase by 500 units.

Quizplus · Accepted Answer

The breakeven point in units is calculated as Total Fixed Costs / (Sales Price per Unit - Variable Costs per Unit). Initially, it is $832,000 / ($44 - $20) = $832,000 / $24 = 34,667 units. After reducing fixed costs by $22,000, the new fixed costs are $832,000 - $22,000 = $810,000. The new breakeven point is $810,000 / $24 = 33,750 units. The difference is 34,667 - 33,750 = 917 units, so the breakeven point decreases by 917 units.

Mosaic Tile Company Has Estimated the Following Amounts for Its