Question

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Weston Co has foxed costs of $250,000 and sells its units for $65, and has variable costs of 53/unit a. Compute the break even point b. Mr. Weston comes up with a plan to cut fixed costs to 5190,000. However, more labor will now be required, which will increase variable costs per unit to 540. The sale price will rem at $65. What is the new break-even point? Under the new plan, what is kely to happen to profitability at very high volume levels compared to the old plan

Answer 1

a.Break even point = Fixed costs/(Selling price per unit – Variable costs per unit)

= 250,000/(65-35)

= 8,333.33 units

b.New break even point = 190,000/(65-40)

= $7,600 units

c.The profit will reduce under new plan when compared to old as variable cost per unit is higher under new plan. Variable cost increases with increase in sales while fixed costs remain constant.

Hence, profit will be lower under new plan at high levels