If fixed costs are $490,000, the unit selling price is $35, and the unit variable costs are $20, what is the break-even sales (units) if fixed costs are reduced by $40,000?
A) 32,667 units
B) 14,000 units
C) 30,000 units
D) 24,500 units

Question

Quizplus · Accepted Answer

First, let's calculate the current break-even sales:

Break-even sales (units) = fixed costs / (unit selling price - unit variable costs)
Break-even sales (units) = $490,000 / ($35 - $20)
Break-even sales (units) = 32,667

Now, if fixed costs are reduced by $40,000, the new fixed costs would be:

New fixed costs = $490,000 - $40,000
New fixed costs = $450,000

Using the same formula as before, we can calculate the new break-even sales:

Break-even sales (units) = new fixed costs / (unit selling price - unit variable costs)
Break-even sales (units) = $450,000 / ($35 - $20)
Break-even sales (units) = 30,000

Therefore, the answer is C as the break-even sales (units) will decrease from 32,667 to 30,000.

If Fixed Costs Are $490,000, the Unit Selling Price Is