Marston Company sells a single product at a sales price of $50 per unit. Fixed costs total $15,000 per month, and variable costs amount to $20 per unit. If management reduces the sales price of this product by $5 per unit, the sales volume needed for the company to break even will:

Question

Quizplus · Accepted Answer

The contribution margin per unit is the difference between the sales price and the variable cost per unit:
$50 - $20 = $30

The break-even point can be calculated using the following formula:
Break-even point (in units) = Fixed costs / Contribution margin per unit

Using the original sales price of $50 per unit:
Break-even point = $15,000 / $30 = 500 units

If the sales price is reduced by $5 per unit, the new sales price will be $45 per unit. The contribution margin per unit will be:
$45 - $20 = $25

The new break-even point can be calculated using the same formula as before:
Break-even point = $15,000 / $25 = 600 units

Therefore, the sales volume needed for the company to break even will increase by 600 - 500 = 100 units or $2,000 (100 units x $20 variable cost per unit). The correct answer is C.

Marston Company Sells a Single Product at a Sales Price