Question

Elk Manufacturing has budgeted the following amounts for its next fiscal year. Total fixed expenses $410,000 Selling price per unit $70 Variable expenses per unit $20 To maintain the original breakeven sales in units if fixed expenses were to increase by 30%, the selling price per unit would have to be increased by 21.43% decreased by 21.43%. increased by 64.29% decreased by 64.29%

Answer 1

	Working Notes: 1
	CALCULATION OF CONTRIBUTION MARGIN
	PARTICULARS	AMOUNT
	Sales	$                           70
	Less: Variable Cost	$                           20
	Contribution Margin	$                           50
	Contribution Margin %	71.43%
	Working Notes: 2
	CALCULATION OF THE BREAK EVEN POINT IN UNITS
	Break Even point =      Fixed Cost / Contribution Margin Per Unit
	Break Even point =
	Fixed Cost =	$               4,10,000
	Divide By	"/" By
	Contribution Margin Per Unit =	$                           50
	Break Even point =	8200	Units
	Break Even Sales = 8,200 Units X $ 70 =	$               5,74,000
	Solution:
	Revised Fixed Expenses = $410,000 X 1.30 =	$               5,33,000
	Add: Variable Cost (8,200 Units X $ 20)	$               1,64,000
	Total Sales Value	$               6,97,000
	Divide By	"/" By
	Number of units	$                     8,200
	Revised Selling price per unit	$                           85
	% increase                                 = ($ 85 - $ 70 ) / $ 70 =	21.43%
	Answer = Option 1 = Increased by 21.43%