A company's selling price is $18 per unit,variable cost is $6 per unit,and fixed costs are $36,000.If fixed costs increased by $6,000,how many additional units must be sold to break even?
A)5,000
B)1,000
C)500
D)250

Question

Quizplus · Accepted Answer

The formula for finding the break-even point is:
Break-even point = Fixed costs / (Selling price per unit - Variable cost per unit)

Using the given information:
Fixed costs = $36,000
Selling price per unit = $18
Variable cost per unit = $6

Therefore, the current break-even point is:
Break-even point = $36,000 / ($18 - $6) = 3,000 units

If fixed costs increase by $6,000, the new fixed cost would be $42,000. To find the new break-even point, we can use the same formula:
New break-even point = $42,000 / ($18 - $6) = 4,500 units

Additional units that must be sold to break even:
Additional units = New break-even point - Current break-even point
Additional units = 4,500 - 3,000 = 1,500 units

However, the question asks for the additional units that must be sold to break even ONLY IF the fixed costs increase by $6,000. Therefore, we need to divide the additional units by 3 (since 3,000 units already cover the initial fixed costs of $36,000).
Additional units = 1,500 / 3 = 500 units

Therefore, the answer is (C) 500.

A Company's Selling Price Is $18 Per Unit,variable Cost Is