Endorphins, Inc. is debating whether to change its cost structure so that variable costs increase from...

Endorphins, Inc. is debating whether to change its cost structure so that variable costs increase from $4 per unit to $5 per unit but fixed costs decrease from $400,000 to $300,000. The current level of sales is 100,000 units.

(T or F) If the sales price is $8 per unit, Endorphins’ the new cost structure will not change the break-even point.

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Expert Solution

	Current Situation	Proposed situation
Sales price	$ 8	$ 8
Less:
Variable cost	$ 4	$ 5
Contribution margin	$ 4	$ 3
Fixed cost	$ 4,00,000	$ 3,00,000
Break-even point	100000	100000


Hence Statement is TRUE

Formula : Break even point = fixed cost / contribution margin

ekkarill92 answered 1 year ago

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