Digby has a new design for their product Dixie next round that can reduce their

Question

Digby has a new design for their product Dixie next round that can reduce their material cost of producing units from $8.14 to $7.32. Digby passes on half of all cost savings by cutting the current price to customers. For simplicity: - Use current labor costs of $4.21 - Assume all period costs as reported on Digby's Income Statement (Annual Rpt Pg 2) will remain the same. Determine how many units (000) of product Dixie would need to be sold next round to break even on the product.

Select: 1

1,008 units.

1,080 units.

1,386 units.

1,132 units.

853 units.

1,666 units

Please use of of the above answers

Explanation / Answer

Break even point means minimum number of units needs to be sold to cover fixed costs.

Break even point = Fixed Cost/ Controbution per unit

Fixed cost is summation of all period costs which is 7529$ in above questions.

Contribution p.u.

Current Selling price= 39407/1080 i.e. 36.48

Revised selling price = current selling price - 50% of the cost saving

=36.48 - 50%(8.14-7.32)

= 36.078

Revised Contribution = Revised Selling Price - Revised Variable Cost

= 36.078 -(7.14+4.21+0.4463)

= 24.10

By using above formula we can calculate Break even point= 7529/24.10

=312.38

Hence minimum 313 units needs to be solved to break even

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