On a weekly basis KleineFirma producing a product has overheads (i.e., fixed costs) of $12,000. The...

On a weekly basis KleineFirma producing a product has overheads (i.e., fixed costs) of $12,000. The product additionally costs $15 per unit to produce and, because the firm is small, all output can be sold at a unit price of $22. (i) Calculate the break-even quantity. (ii) Calculate the new break-even quantity if the selling price falls to $20. (iii) Calculate the new break-even quantity if fixed costs change to $20,000. (iv) Calculate the new break-even quantity if variable costs change to $16. (v) Show (and hence confirm) your answers graphically. NOTE: in specific looking for the answer to v but would like to get confirmation on the other answers too

Solutions

Expert Solution

(A) new break even quantity
sales price	22
variable Cost	15
contribution = S-V	7

fixed cost	12000

Break even quantity
fixed cost/ contribution	1714.286	1714

(B) sales price reduced to $20
sales price	20
variable Cost	15
contribution = S-V	5

fixed cost	12000

Break even quantity
fixed cost/ contribution	2400

(C ) fixed cost change to $20000
sales price	20	22
variable Cost	15	15
contribution = S-V subject to	5	7

fixed cost	20000

Break even quantity
fixed cost/ contribution	2857.143	if contribution is $7
	4000	if contribution is $5

(D) variable cost change to $16
sales price	20
variable Cost	16
contribution = S-V	4

fixed cost subject to	20000	12000

Break even quantity
fixed cost/ contribution	5000	if fixed cost is 20000
	3000	if fixed cost is $12000

Rahul Sunny answered 1 week ago

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