Question

Points Possible Due Date Sunday, March 1, 2020 11:59 PM Weston Co has fixed costs of $250,000 and sells its units for $65, and has variable costs of $35/unit. a. Compute the break-even point. b. Mr. Weston comes up with a plan to cut fixed costs to $190,000. However, more labor will now be required, which will increase variable costs per unit to $40. The sale price will remain at $65. What is the new break-even point? c. Under the new plan, what is likely to happen to profitability at very high volume levels (compared to the old plan)? ASSIGNMENT SUBMISSION Text Submission Write Submission when finished, make sure to click Submit Ob Save as Draco a changes and continue working later, or click Cancel to quit without saving changes

Answer 1

a) Calculation of Break even point:

Fixed Cost = $250,000 (A)

Variable cost= $35/unit (B)

Selling price= $65/unit (C)

Contribution= C-B i.e., $65-$35 = $30

Break even point = Fixed cost/Contribution per unit

$250,000/$30= $8333.33(approx.)

b)Calculation of new Break even point:

Fixed cost= $1,90,000 (A)

Variable cost= $40 (B)

Selling price= $65 (C)

Contribution =$25 (C-B)(D)

Break even point =$190000/$25= $7600 (A/D)

c) Break even point denotes a point where the sale volume is able to exhaust/recover the fixed cost and after which sale could be more profitable. Under new plan, profitability will be high at high volumes since the break even point is less than the old plan and Weston co. can earn more profit at low volume.