Choice "B" is correct. The ceramics manufacturer will need to sell 19,250 cups under new cost assumptions to break even. The fact pattern provides current breakeven information and requires computation of a revised breakeven subject to new assumptions.
| Current Costs
| | Assumptions
| | Revised Costs
|
|---|
Selling price (given) | $7.50 | | | | $9.00 |
Variable costs (given) | 2.25 | × | 1.333 | = | 3.00 |
Contribution margin (computed) | $5.25 | | | | $6.00 |
Breakeven in units (given) | 20,000 | | | | |
Fixed costs (computed) | $105,000 | × | 1.10 | = | $115,500 |
Current fixed costs are computed using the breakeven formula in units as follows:
Fixed costs ÷ Contribution margin per unit |
Fixed costs ÷ $5.25 |
Fixed costs$5.25 x 20,000$105,000 |
Revised breakeven point in units is computed using the same formula with revised data:
Fixed costs ÷ Contribution margin per unit |
$115,500 ÷ $6.00 |
19,250 |
Choice "d" is incorrect. The solution assumes no change in variable costs.Choice "a" is incorrect. The solution assumes no change in fixed costs.Choice "c" is incorrect, per the explanations provided above.
