1.April Green Company has budgeted the following amounts for its next fiscal year:
Total fixed expenses
$832,500
Sale price per unit
$40
Variable expenses per unit
$25
By how much will breakeven increase/decrease in units if April can reduce fixed expenses by $27,000?
To calculate the increase/decrease in units required to reach breakeven after reducing fixed expenses, we need to use the breakeven formula. The formula for breakeven point in units is as follows:
Breakeven Point (units) = Total Fixed Expenses / (Sale price per unit - Variable expenses per unit)
First, let's calculate the original breakeven point:
Breakeven Point (units) = $832,500 / ($40 - $25)
Breakeven Point (units) = $832,500 / $15
Breakeven Point (units) = 55,500 units
Now, let's calculate the new breakeven point after reducing fixed expenses by $27,000:
New Breakeven Point (units) = ($832,500 - $27,000) / ($40 - $25)
New Breakeven Point (units) = $805,500 / $15
New Breakeven Point (units) = 53,700 units
Therefore, after reducing fixed expenses by $27,000, the breakeven point will decrease by 1,800 units.