If fixed costs are $256,000, the unit selling price is $38, and the unit variable costs are $22, what are the old and new break-even sales (units) if the unit selling price increases by $4? a. 16,000 units and 12,800 units b. 16,000 units and 15,000 units c. 6,737 units and 6,400 units d. 16,000 units and 18,286 units

The correct answer here is option A) 16,000 units and 12,800 units.

Explanation:

Break even sales is a very important analysis which a company's management do to know how much of the sales they need to make to avoid losses and earn profit. In this all the fixed cost and variable cost are included.

FORMULA FOR BREAK EVEN SALES ( UNITS ) =

             FIXED COST / CONTRIBUTION MARGIN

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

OLD BREAK EVEN SALES =

        where fixed cost = $256,000 and selling unit = $38, variable cost= $22

  =                FIXED COST / CONTRIBUTION MARGIN

  =          $256,000 / $38 - $22

  =          $256,000 / 16

  =         16,000 UNITS

NEW BREAK EVEN SALES =

here new selling price per unit = $42

=  $256,000 / $42 - $22

= $256,000 / $20

= 12,800 units.

The break even sales will be 16,000 units and 12,800 units.

Explanation:

The fixed costs are $256,000.

The unit selling price is $38, while the unit variable costs are $22.

To find the break even sales, we will calculate the ratio of fixed costs and contribution margin per unit.

The contribution margin per unit will be the difference between per unit price and per unit variable costs.

Break even sales

= Fixed costs/ contribution margin per unit

=$256000/$38-$22

=$256000/$16

=16000 units

Now, If there is an increase in price level by $4.

New break even sale

= Fixed costs/ contribution margin per unit

=$256000/$42-$22

=$256000/$20

=12800 units

So, the Old break even sales is 16,00 units. While the new break even sales is 12,800 units.

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