A company has sales of $500,000, variable costs of $300,000, and operating income of $150,000. If the company increased the sales price per unit by 10... Accounting MCQs | Accounting MCQs

A company has sales of $500,000, variable costs of $300,000, and operating income of $150,000. If the company increased the sales price per unit by 10%, reduced fixed costs by 20%, and left variable cost per unit unchanged, what would be the new breakeven point in sales dollars?

$88,000$100,000$110,000$125,000Show Result

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Detailed Answer

Answer (A) is correct. The breakeven point in sales dollars is equal to total fixed costs divided by the
contribution margin ratio. Fixed costs are $50,000 ($500,000 sales – $300,000 variable costs – $150,000 operating income). If sales increase by 10% ($500,000 × 1.10 = $550,000) and fixed costs decrease by 20% ($50,000 × .80 = $40,000), the new contribution margin is 45.45% [($550,000 – $300,000) ÷ $550,000]. The new breakeven point can be calculated as follows: BEP in dollars = Fixed costs ÷ CMR = $40,000 ÷ .4545 =$88,000