Question

Break-Even (Units) Parker & Associates, LLC has budgeted the following amounts for its next fiscal year: Total fixed expenses $980,000 Selling price per unit $48 Variable expenses per unit $23 If fixed expenses increase by 10%, the selling price per unit would need to increase by what percentage in order to maintain the original break-even sales in units (round to the nearest tenth of a percent)? Round percentage to one decimal place (ex: 0.03456 = 3.5%). * %

Answer 1

Contribution margin=Sales-Variable expenses

=(48-23)=$25 per unit

Current Breakeven=Fixed expenses/Contribution margin

=(980,000/25)=39200 units

New fixed expenses=(980,000*1.1)=$1,078,000

Hence contribution margin required=(1,078,000/39200)=$27.5 per unit

Hence required sales price=(27.5+23)=$50.5 per unit

Hence increase in price=(New price-Previous price)/Previous sales price

=(50.5-48)/48

=5.2%(Approx).