10. The CK Corporation has fixed costs of $380,000, sells its units for $68, and

Question

10. The CK Corporation has fixed costs of $380,000, sells its units for $68, and has variable costs of $33 per unit. Compute the break-even point (3pts) The Corporation comes up with a new plan to cut fixed costs to $300,000. However, more labor will now be required, which will increase variable costs per unit to $38. The sales price will remain at $68.What is the new break-even point (2pts)? a. b· c Under the new plan, what is likely to happen to profitability at very high volume levels (compared to the old plan) (2pts)?

Explanation / Answer

Answer a Break even point in units = Fixed Costs / (Selling price per unit - Variable cost per unit) Break even point in units = $380000 / ($68 - $33) = 10857 units Break even point in dollars = Break even units * Selling price per unit = 10857 units * $68 = $7,38,285.71 Answer b New Break even point in units = $300000 / ($68 - $38) = 10000 units Break even point in dollars = Break even units * Selling price per unit = 10000 units * $68 = $6,80,000 Answer c Under the new plan , the profitability at very high volume level will be higher compared to old plan. This is because of reduction in fixed cost.

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