Question
In: Accounting
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 |
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