In: Accounting
Clark Company produces flash drives for computers, which it sells for $20 each. Each flash drive costs $6 of variable costs to make. During April, 1,000 drives were sold. Fixed costs for March were $4.20 per unit for a total of $4,200 for the month. If variable costs increase by 10%, what happens to the break-even level of units per month for Clark Company?
A. |
It is 10% higher than the original break-even point. |
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B. |
It increases about 13 units. |
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C. |
It increases about 30 units. |
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D. |
It depends on the number of units the company expects to produce and sell. |
Break even point in units = Fixed expenses / Contribution margin
Present | Anticipated | |
Fixed expenses | $ 4,200 | $ 4,200 |
Contribution margin | $20-$6 = $14 | $20-($6*110%) = $13.40 |
Break even point in units | 300 | 313 |
Answer is
B. |
It increases about 13 units. |
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