Question

Management at the Forrest Company currently sells its products for $275 per unit and is contemplating a 40% increase in the selling price for the next year. Variable costs are currently 15% of sales revenue and are not expected to change in dollar amount on a per unit basis next year (the company will still pay the same variable cost per unit). Fixed expenses are $142,500 per year. If fixed costs were to decrease 10% during the current year and the new selling price goes into effect, how many units will need to be sold to breakeven? A. 334 units B. 467 units C. 374 units D. 179,550 units

Answer 1

Option C is correct i.e. 374 units

Calculation:-

Variable cost per unit = 275 x 15% = $41.25

Revised sales price per unit = 275 x 1.40 = $385

Revised fixed cost = 142,500 - 10% = $128,250

Contribution per unit = 385 - 41.25 = $343.75

Breakeven units = revised fixed cost/contribution per unit

= 128,250/343.75

= 374 units