Boss Enterprises currently sells its products for $ 90 per unit. Management is contemplating a 40% increase in the selling price for the next year. Variable costs are currently 40% of sales revenue and are not expected to change next year. Fixed expenses are $ 270 comma 000 per year. What is the breakeven point in units at the current selling price?

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DeniceSandidge DeniceSandidge · Answer 1 · 2019-11-05T07:23:03+01:00

Answer:

break even point in units at the current selling price is $5000 units

Explanation:

given data

Selling price = $ 90 per unit

selling price for next year = 40% increase

Variable costs = 40% of sales revenue

Fixed expenses = $ 270,000 per year

to find out

break even point in units at the current selling price

solution

we know that Contribution margin is

Contribution margin = 1 - Variable cost ratio ..............1

Contribution margin = 1 - 0.40

Contribution margin = 0.60

so Contribution per unit will be

Contribution per unit = Selling price × Contribution margin ratio .............2

Contribution per unit = $90 × 0.60

Contribution per unit = $54 per unit

and

Break even point in units at current price will be

Break even point = [tex]\frac{Fixed cost}{ Contribution per unit}[/tex] ........3

Break even point = [tex]\frac{270000}{ 54}[/tex]

Break even point = $5000 units

so break even point in units at the current selling price is $5000 units