Currently, the unit selling price of a product is $110, the unit variable cost is $80, and the total fixed costs are $345,000. A proposal is being evaluated to increase the unit selling price to $120.
a. Compute the current break-even sales (units).
units
b. Compute the anticipated break-even sales (units), assuming that the unit selling price is increased and all costs remain constant.
units
a) unit margin =110-80 = 30
Fixed cost =345000
Break-even = 345000/30 = 11500 units
b) new break-even = 345000/40 = 8625 units
To calculate the break-even sales in units, we need to use the formula:
Break-Even Sales (Units) = Total Fixed Costs / Contribution Margin per Unit
where the contribution margin per unit is calculated as:
Contribution Margin per Unit = Unit Selling Price - Unit Variable Cost
a. Current Break-Even Sales (Units):
Using the given information:
Unit Selling Price = $110
Unit Variable Cost = $80
Total Fixed Costs = $345,000
Contribution Margin per Unit = $110 - $80 = $30
Break-Even Sales (Units) = $345,000 / $30 = 11,500 units
Therefore, the current break-even sales in units is 11,500 units.
b. Anticipated Break-Even Sales (Units):
Assuming the unit selling price is increased to $120, we can calculate the new contribution margin per unit:
New Contribution Margin per Unit = $120 - $80 = $40
Break-Even Sales (Units) = $345,000 / $40 = 8,625 units
Therefore, the anticipated break-even sales in units, assuming the unit selling price is increased, is 8,625 units.