Bass Corporation currently sells its products for $25 per unit. Management is contemplating a 40% 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. What is the break-even point in units at the current selling price?

Question

Quizplus · Accepted Answer

To find the break-even point, we need to calculate the contribution margin per unit first.
Contribution Margin per unit = Selling Price per unit - Variable Cost per unit
Variable cost is currently 40% of sales revenue, so Variable Cost per unit is:
Variable Cost per unit = 0.4 * $25 = $10
Contribution Margin per unit = $25 - $10 = $15

Next, we can calculate the break-even point in units using the formula:
Break-even point (units) = Fixed Expenses / Contribution Margin per unit

Break-even point (units) = $120,000 / $15 = 8,000 units

Therefore, the answer is D (8,000 units).

Bass Corporation Currently Sells Its Products for $25 Per Unit