Under absorption costing a company had the following per unit costs when 10,000

Question

Under absorption costing a company had the following per unit costs when 10,000 units were produced.

The company sells its product for $50 per unit. Due to new regulations, the company must now incur $2 per unit of hazardous waste disposal costs and $8,500 per year of fixed hazardous waste disposal costs.

Compute the company’s break-even point (in units), including hazardous waste disposal costs.

Direct labor $ 2 Direct material 3 Variable overhead 4 Total variable cost 9 Fixed overhead ($50,000/10,000 units) 5 Total product cost per unit $ 14

Explanation / Answer

Break even point (in units) = fixed costs / contribution per unit.

here,

fixed costs will be = $50,000 +$8,500

=>$58,500.

contribution per unit = sale price - total variable cost.

total variable cost under new circumstance = $9 + $2

=>$11.

contribution per unit = $50-$11

=>$39

break even point in units= $58,500 / $39

=>1,500 units.

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