Grosheim Incorporated has fixed expenses of $211,500 per year. Right now, Grosheim Incorporated is selling its products for $100 per unit. Management is contemplating a 20% increase in the selling price for the next year. Variable costs are currently 40% of sales revenue and are not expected to change in dollar amount on a per unit basis next year (the company will pay the same amount for variable costs next year). If fixed costs increase 10% next year, and the new selling price per unit goes into effect, how many units will need to be sold to breakeven?

Question

Business

Isaiah Pugh

14 September, 03:59

Grosheim Incorporated has fixed expenses of $211,500 per year. Right now, Grosheim Incorporated is selling its products for $100 per unit. Management is contemplating a 20% increase in the selling price for the next year. Variable costs are currently 40% of sales revenue and are not expected to change in dollar amount on a per unit basis next year (the company will pay the same amount for variable costs next year). If fixed costs increase 10% next year, and the new selling price per unit goes into effect, how many units will need to be sold to breakeven?

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Patience Ruiz · Answer 1

Breakeven in units is 3231

Explanation:

Breakeven units=fixed costs/contribution margin per unit.

new selling price=$100 * (1+20%) = $120

variable cost per unit=$120*40%=$48

contribution margin=selling price per unit-variable cost per unit

contribution margin per unit=$120-$48=$72

fixed costs next year=$211,500 * (1+10%) = $232,650.00

breakeven units=$232,650.00/$72=3231