Management at the Forrest Company currently sells its products for $ 225 per unit and is contemplating a 40 % increase in the selling price for the next year. Variable costs are currently 25 % 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 $ 133 comma 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. 465 units

Question

Business

Esther Bond

18 July, 22:30

Management at the Forrest Company currently sells its products for $ 225 per unit and is contemplating a 40 % increase in the selling price for the next year. Variable costs are currently 25 % 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 $ 133 comma 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. 465 units

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Tiara Mccall · Answer 1

464.35 units

Explanation:

The computation of units will need to be sold to break-even is shown below:-

Variable cost per unit = 25% * $225

= $56.25 per unit

Revised selling price = $225 + 40% increase

= $225 + $225 x 40%

= $315 per unit

Contribution per unit = Selling price per unit - Variable cost per unit

= $315 - $56.25

= $258.75

Current fixed costs = $133,500

Revised fixed cost = $133,500 - 10% * $133,500

= $120,150

Number of units required to break even = Revised fixed cost : Contribution per unit

= $120,150 : $258.75

= 464.35 units