1. John is planning to sell his bammy for $300.00 per unit. He purchases units f

Question

1. John is planning to sell his bammy for $300.00 per unit.   He purchases units from a friend for $120.00 each. He can return any unsold units for a full refund. Fixed costs for booth rental, including other overhead is $9000.

required:

i. Compute the breakeven point in units sold.

ii. Suppose the bammy purchased is $100.00 instead of $120.00, but the selling price is          

     changed. Compute the new breakeven point in units sold.

iii. Suppose the fixed cost increase by 50% using the purchase price of $120. Compute

      the new breakeven point in units sold.

Explanation / Answer

Answer:1

i Breakeven Point (units)=Fixed expenses/Contribution margin Per unit

=$9000/($300-$120)

=50 units

ii New Breakeven Point (units)=Fixed expenses/Contribution margin Per unit

=$9000/($300-$100)

=45 units

iii New Breakeven Point (units)=Fixed expenses/Contribution margin Per unit

=$9000(1.50) /($300-$120)

=75 units

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