Question

QUESTION 12 Bootfall Company currently produces and sells 4,000 units of a product that has a contribution margin of $5 per unit. The company sells the product for a sales price of $20 per unit. Fixed costs are $20,000. The company has recently invested in new technology and expects the variable cost per unit to fall to $12 per unit. The investment is expected to increase fixed costs by $15,000. After the new investment is made, how many units must be sold to break even? A. 4,000 units B.4,375 units C.7,000 units D. 2,917 units QUESTION 13 In the first year of business, Friendly Company paid $32,000 for direct materials and $42,000 for production workers' wages. Lease payments and utilities on the production facilities amounted to $25,000 while general, selling, and administrative expenses totaled $10,000. The company produced 4,000 units and sold 3,000 units at a selling price of $35.00 a unit. What is Friendly's cost of goods sold for the year? A. $55,500 B. $81,750 C.$109,000 D. $74,250

Answer 1

Question 12:

The correct answer is B) 4,375 units.

Supporting calculations:

Selling price per unit	$20
Less: Contribution margin per unit	($5)
Current variable cost per unit	$15
Selling price per unit	$20
Less: Revised variable cost per unit	($12)
Revised contribution margin per unit (a)	$8
Revised Fixed costs ($20,000 + $15,000) (b)	$35,000
Break-even point in sales units (b / a)	4,375

Therefore, break-even point in sales units is 4,735 units.

Note: The second question is incomplete question because opening work in process inventory, finished goods inventory are necessary to calculate the cost of goods sold.