Barnam Company currently produces and sells 12,000 units of a product that has a

Question

Barnam Company currently produces and sells 12,000 units of a product that has a contribution margin of $8 per unit. The company sells the product for a sales price of $20 per unit. Fixed costs are $37,800. The company has recently invested in new technology and expects the variable cost per unit to fall to $12 per unit. The investment is expected to increase fixed costs by $20,000. After the new investment is made, how many units must be sold to break-even? (Do not round intermediate calculations.)

Explanation / Answer

CALCULATION OF CONTRIBUTION MARGIN PER UNIT PARTICULARS AMOUNT Selling Price Per Unit= $                           20 Less: Variable Cost Per Unit $                           12 Contribution Margin Per Unit $                             8 Contribution Margin % 40% ($ 8 / $ 20 X 100) CALCULATION OF THE BREAK EVEN POINT IN UNITS Revise Fixed Cost = $ 37,800 + $ 20,000 = $                   57,800 Break Even point =      Fixed Cost / Contribution Margin Per Unit Break Even point =       Fixed Cost = $                   57,800 Divide By "/" By Contribution Margin Per Unit = $                             8 Break Even point =       7225 Units Answer = 7,225 Units

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