Mia Enterprises sells a product for $90 per unit. The variable cost is $40 per unit, while fixed costs are $75,000. Determine the (a) break-even point in sales units, and (b) break-even point if the selling price was increased to $100 per unit.
To determine the break-even point in sales units, we need to find the number of units that need to be sold in order to cover all fixed and variable costs. The break-even point is the point at which the total revenue is equal to the total costs.
(a) Break-even point in sales units:
Step 1: Calculate the contribution margin per unit.
The contribution margin is the difference between the selling price per unit and the variable cost per unit.
Contribution Margin = Selling Price per Unit - Variable Cost per Unit
= $90 - $40
= $50
Step 2: Calculate the break-even point in units.
Break-even Point in Units = Fixed Costs / Contribution Margin per Unit
= $75,000 / $50
= 1,500 units
Therefore, the break-even point in sales units is 1,500 units.
(b) Break-even point if the selling price was increased to $100 per unit:
Step 1: Calculate the new contribution margin per unit.
New Contribution Margin = New Selling Price per Unit - Variable Cost per Unit
= $100 - $40
= $60
Step 2: Calculate the break-even point in units.
Break-even Point in Units = Fixed Costs / New Contribution Margin per Unit
= $75,000 / $60
= 1,250 units
Therefore, if the selling price is increased to $100 per unit, the new break-even point in sales units becomes 1,250 units.