Cornerstones of Cost Management 2nd Edition by Don Hansen ,Maryanne Mowen

Exercise 26

Changes in Break-Even Points with Changes in Unit Prices
Salamanca produces and sells refrigerator magnets to be sold as novelty items by resorts. Last year, Salamanca sold 198,400 units. The income statement for Salamanca, Inc., for last year is as follows:

Required:
1. Compute the break-even point in units and in revenues. Compute the margin of safety in sales revenue for last year.
2. Suppose that the selling price decreases by 8 percent. Will the break-even point increase or decrease? Recompute the break-even point in units. (Round up to the nearest whole unit.)
3. Suppose that the variable cost per unit decreases by $0.20. Will the break-even point increase or decrease? Recompute the break-even point in units. (Round up to the nearest whole unit.)
4. Can you predict whether the break-even point increases or decreases if both the selling price and the unit variable cost decrease? Recompute the break-even point in units incorporating both of the changes in Requirements 2 and 3. (Round up to the nearest whole unit.)
5. Assume that total fixed costs increase by $50,000. (Assume no other changes from the original data.) Will the break-even point increase or decrease? Recompute it. (Round up to the nearest whole unit.)