Homework Answers
(a) Number of units sold at breakeven point = Breakeven point / Selling price per unit = $350,000 / $5 = 70,000 units
At break-even point, fixed cost = Contribution margin
So, for 70,000 units the total contribution margin is $112,000
So, contribution margin per unit = $112,000 / 70,000 units = $1.6
Variable cost per unit = Selling price per unit - Contribution margin per unit = $5 - $1.6 = $3.4
Contribution margin ratio = Contribution margin per unit / Selling price per unit = $1.6 / $5 = 32%
(b) It is given that in the year 2014 the selling price and variable cost per unit did not change, but the break-even point is increased to $420,000
Break-even point = Fixed cost / Contribution margin ratio
$420,000 = Fixed cost / 32%
Fixed cost = $420,000 * 32% = $134,400
So, the increase in fixed costs for 2014 = Fixed cost in 2014 - Fixed cost in 2013 = $134,400 - $112,000 = $22,400
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