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Accents Associates sells only one product,with a current selling price of $70 per unit.Variable costs are 40% of this selling price,and fixed costs are $12,000 per month.Management has decided to reduce the selling price to $65 per unit in an effort to increase sales.Assume that the cost of the product and fixed operating expenses are not changed by this reduction in selling price.
-At the current selling price of $70 per unit,the dollar volume of sales per month necessary for Accents to break-even is:

Question

Quizplus · Accepted Answer

To break-even, we need to cover fixed costs.

Fixed costs = $12,000 per month.

Contribution Margin per unit = Selling price per unit - Variable costs per unit = $70 - 0.40($70) = $42.

Set up the equation:

$42Q = $12,000

Q = $12,000 / $42 per unit

Q = 285.7

So, the dollar volume of sales per month necessary to break-even is 285.7 units x $70 per unit = $19,999.90, which is closest to (B) $20,000.

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