QUESTION 13 Gleason sells a single product at $14 per unit. The firm\'s most rec

Question

QUESTION 13 Gleason sells a single product at $14 per unit. The firm's most recent income statement revealed unit sales of 80,000, variable costs of s800,000, and fixed costs of S560 000 Management believes that a S3 drop in selling price will boost unit sales volume by 20%. Which of the following correctly depicts how these two changes will affect the company's break-even point? Answer Choice Drop in Selling Price Increase in Sales Volume Increase the breakeven volume Increase the breakeven volume Increase the breakeven volume Decrease the breakeven volume Increase the breakeven volume No effect on breakeven volume D Decrease the breakeven volume Increase the breakeven volume Decrease the breakeven volume Decrease the breakeven volume O A Choice A O B. Choice B O C. Choice c O D. Choice D O E Choice E

Explanation / Answer

Question 13: Correct Option : C. Choice C.

Initial break-even volume = $ 560,000 / $ ( 14 - 10) = 140,000 units.

Break-even volume after decrease in selling price = $ 560,000 / $ ( 11 - 10) = 560,000 units.

Therefore, a drop in selling price has the effect of increasing the break-even volume.

Increase in actual sales volume however has no bearing on the break-even volume.

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