Clark Company produces flash drives for computers, which it sells for $20 each. Each flash drive...

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.
	B.	It increases about 13 units.
	C.	It increases about 30 units.
	D.	It depends on the number of units the company expects to produce and sell.

Expert Solution

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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ekkarill92 answered 2 years ago

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