Asked by Jorge Ortez on Jul 11, 2024
Verified
If the company's fixed costs decrease by 20% next year, all other factors remaining the same, the break-even level will change from that of the current year by (rounded your final answer to the nearest whole unit) :
A) 200 unit decrease.
B) no change in the break-even point in units.
C) 200 unit increase.
D) 440 unit decrease.
Break-Even Level
The point at which total revenues equal total expenses, and the business neither makes a profit nor incurs a loss.
Fixed Costs
Expenses that do not change with the level of production or sales, such as rent, salaries, and insurance.
Variable Cost
A cost that changes in proportion to the level of production or business activity.
- Analyze the effects of changes in fixed costs and sales volume on the break-even point.
Verified Answer
SD
Siobhan DawidiJul 14, 2024
Final Answer :
A
Explanation :
The break-even point in units is calculated as Fixed Costs / (Sales price per unit - Variable cost per unit). With a 20% decrease in fixed costs, the new fixed costs would be $42,000 * 0.8 = $33,600. The break-even point would then be $33,600 / ($60 - $18) = 840 units, compared to the original break-even point of 1,050 units ($42,000 / ($60 - $18)). This is a decrease of 210 units, which rounds to a 200 unit decrease.
Learning Objectives
- Analyze the effects of changes in fixed costs and sales volume on the break-even point.