Question

Erie has a new design for their product Echo next round that can reduce their material cost of producing units from $8.13 to $7.32. Erie passes on 50% of all cost savings by cutting the current price to customers. For simplicity: Current selling price = $19.00; Use current labor costs of $4.02; Use period costs of $7,260 (in 000s, from Income Statement). The break-even formula is: Break-Even = (Fixed Costs for Period)/(Unit selling price – Unit Variable Cost). Determine how many units (000) of product Echo would need to be sold next round to break even on the product.

Answer 1

Answer:

Break-even point= 948 units

Explanation:

Giving the following information:

Echo next round that can reduce their material cost of producing units from $8.13 to $7.32. Erie passes on 50% of all cost savings by cutting the current price to customers. For simplicity: Current selling price = $19.00; Use current labor costs of $4.02; Use period costs of $7,260.

Break-even point= fixed costs/ contribution margin

Unitary variable costs= 7.32 + 4.02= 11.34

Break-even point= 7260/(19-11.34)= 948 units