The Springer Company sells its product for $20 per unit. Its fixed costs are $10,000 and the variable cost per unit is $10
What is the new break-even point if the price per unit increases from $20 to $30
To find the new break-even point, we need to calculate the new contribution margin per unit and then use it to determine the new break-even quantity.
1. Calculate the contribution margin per unit:
Contribution margin per unit = Selling price per unit - Variable cost per unit
Contribution margin per unit = $30 - $10 = $20
2. Calculate the new break-even quantity:
Break-even quantity = Fixed costs / Contribution margin per unit
Break-even quantity = $10,000 / $20 = 500 units
Therefore, the new break-even point is 500 units.
To determine the new breakeven point, we need to calculate the breakeven quantity at the new price per unit.
The breakeven point is the quantity at which total revenue equals total costs. The total cost can be calculated as the sum of fixed costs and variable costs.
First, let's calculate the breakeven quantity at the original price per unit of $20:
Breakeven Quantity = Fixed Costs / (Price per Unit - Variable Cost per Unit)
Breakeven Quantity = $10,000 / ($20 - $10)
Breakeven Quantity = $10,000 / $10
Breakeven Quantity = 1,000 units
Therefore, the original breakeven quantity was 1,000 units.
Now, let's calculate the new breakeven quantity at the increased price per unit of $30:
Breakeven Quantity = Fixed Costs / (Price per Unit - Variable Cost per Unit)
Breakeven Quantity = $10,000 / ($30 - $10)
Breakeven Quantity = $10,000 / $20
Breakeven Quantity = 500 units
Therefore, the new breakeven quantity is 500 units.
Increasing the price per unit from $20 to $30 has decreased the breakeven quantity from 1,000 units to 500 units.