Question

Sam has recently found out that prices from his manufacturer will be increasing the variable cost by $40 when it used to only be $80. Sam wants to determine if he can keep the selling price the same for customers by decreasing his fixed costs by $15,000. Currently Sam’s sales are $300,000 at $200 per unit, and his fixed costs are $95,000. If Sam makes his proposed changes, how many sales in units will he need to make to keep prices the same while earning the same profit?

Answer 1

New units sale= 2,063 units

Step-by-step explanation:

Giving the following information:

Sam has recently found out that prices from his manufacturer will be increasing the variable cost by $40 when it used to only be $80. Sam wants to determine if he can keep the selling price the same for customers by decreasing his fixed costs by $15,000. Currently, Sam’s sales are $300,000 at $200 per unit, and his fixed costs are $95,000.

First, we need to calculate the current profit:

Sales in units= 1,500

Contribution margin= (200 - 80)*1,500= 180,000

Fixed costs= 95,000 (-)

Profit= 85,000

To calculate the units required to adapt to the new changes using the following formula:

Break-even point= (fixed costs + profit)/ contribution margin

Break-even point= (80,000 + 85,000)/ (200 - 120)

Break-even point= 2,063 units