Question

Moe's Garage management has budgeted the following amounts for its next fiscal year: Total fixed expenses Selling price per unit Variable expenses per unit $990,000 $200 $155 If Moe's can reduce fixed expenses by $11,000, by how much can variable expenses per unit increase and still allow the company to maintain the original breakeven sales in units O A. $0.50 OB. $155.50 O C. $45.00 OD. $44.50

Answer 1

Correct answer-----------(A) 0.50

Working

	Original	After reduction in fixed cost	Increase in Variable cost
Sale Price per unit	$              200.00	200
New variable cost per unit	$              155.00	155.5	$                (0.50)
New contribution margin	$                45.00	$            44.50
Fixed Cost	$      990,000.00	$ 979,000.00
Break Even point in Unit Sales	22,000	22,000

.

Sales revenue at breakeven (200 x 22000)	$ 4,400,000.00
Total fixed cost (990000-11000)	$      979,000.00
Total variable cost at breakeven (4400000-979000)	$ 3,421,000.00
Units sold at breakeven	22000
Variable cost per unit (3421000/22000)	$              155.50
Increase in variable cost per unit (155.5-155)	$                   0.50