Question

Sunland Company produces flash drives for computers, which it sells for $20 each. Each flash drive costs $10 of variable costs to make. During April, 2500 drives were sold. Fixed costs for April were $6 per unit for a total of $15000 for the month. If variable costs decrease by 20%, what happens to the break-even level of units per month for Sunland Company? It is 20% higher than the original break-even point. It decreases about 250 units. It decreases about 300 units. It depends on the number of units the company expects to produce and sell.

Answer 1

Answer : Option B : It decrease about 250 Units.

Explanation ;

$15,000 / ($20 - $10) = 1,500

$15,000 / ($20 - ($10)(.80)) = $15,000 / ($20-$8)

= $15,000/$12= 1,250

= 1,500 - 1,250 = 250 Units