Question

Blossom Monograms sells stadium blankets that have been monogrammed with high school and university emblems. The blankets retail for $40 throughout the country to loyal alumni of over 1,000 schools. Blossom’s variable costs are 40% of sales; fixed costs are $120,000 per month.

Assume that variable costs increase to 45% of the current sales price and fixed costs increase by $10,000 per month. If Blossom were to raise its sales price by 10% to cover these new costs, what would be the new annual breakeven point in sales dollars? (Round sales price to 2 decimal places, e.g. 52.75 and final answer to 0 decimal places, e.g. 5,275.)

Answer 1

New selling price = $40 + 10% = $44 per unit

New variable cost = $40 X 45% = $18 per unit

New fixed cost per annum = ($120,000 + $10,000) X 12 = $1,560,000

Contribution margin per unit = $44 - $18 = $26

Breakeven sales = (New fixed cost per annum / Contribution margin per unit) X New selling price

= ($1,560,000 / $26) X $44

= $2,640,000