Answer (A) is correct . The breakeven point in sales dollars is equal to total fixed costs divided by the contribution margin ratio. Fixed costs are $50,000 ($500,000 sales – $300,000 variable costs – $150,000 operating income). If sales increase by 10% ($50,000 × 1.10 = $550,000) and fixed costs decrease by 20% ($50,000 × .80 = $40,000), the new contribution margin is 45.45% [($550,000 – $300,000) ÷ $550,000]. The new breakeven point can be calculated as follows: BEP in dollars = Fixed costs ÷ CMR = $40,000 ÷ .4545 = $88,000
Answer (B) is incorrect because Ignoring the 10% sales price increase results in $100,000.
Answer (C) is incorrect because Ignoring the 20% decrease in fixed costs results in $110,000.
Answer (D) is incorrect because Ignoring the changes in sales price and fixed costs results in $125,000.
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