Question

Santa Fe Production sells a single product to wholesalers. The company's budget for the upcoming year revealed anticipated unit sales of 31,600, a selling price of $20, variable cost per unit of $8, and total fixed costs of $360,000.
If Santa Fe’s unit sales are 300 units more than anticipated, its break-even point will:


A. decrease by $12 per unit sold.

B. decrease by $8 per unit sold.

C. increase by $12 per unit sold.

D. increase by $8 per unit sold.

E. not change.

Answer 1

Answer:

Option (E) is correct

Explanation:

Given that,

Anticipated unit sales = 31,600

Selling price = $20,

Variable cost per unit = $8,

Total fixed costs = $360,000

Break-even point:

= Total fixed costs ÷ (Selling price - Variable cost)

= $360,000 ÷ ($20 - $8)

= $360,000 ÷ $12

= 30,000 units

If Santa Fe’s unit sales are 300 units more than anticipated, then as a result the break even point remains the same because increase in the unit sales will not impact the break even point.