Hosbach Enterprises has fixed expenses of $200,000 per year. Right now, Hosbach Enterprises is selling its products for $100 per unit. Management is contemplating a 20% increase in the sale price for the next year. Variable costs are currently 40% of sales revenue and are not expected to change in dollar amount on a per unit basis next year (the company will pay the same amount for variable costs next year). If fixed costs increase 10% next year, and the new sale price per unit goes into effect, how many units will need to be sold to break even?

Question

Quizplus · Accepted Answer

First, we need to calculate the current contribution margin per unit:
Sale price per unit - Variable cost per unit = $100 - ($100 x 0.40) = $60

Next, we need to calculate the new sale price per unit after the 20% increase:
$100 + ($100 x 0.20) = $120

Then, we need to calculate the new contribution margin per unit:
$120 - ($100 x 0.40) = $80

Now, we can calculate the new break-even point in units:
Break-even point in units = Fixed costs / Contribution margin per unit
Break-even point in units = ($200,000 x 1.10) / $80 = 2,750 units

Therefore, the answer is B) 2,750 units

Hosbach Enterprises Has Fixed Expenses of $200,000 Per Year