Fixed costs for a product are 60,000. The product itself sells ...

[jman1234]

Fixed costs for a product are 60,000. The product itself sells for 4.00 and it costs 1.00 to make each product. How will the break-even point for the product change if the variable cost per unit goes up to 1.50?
 
  A) The break-even point will increase by 4000.
  B) The break-even point will increase by 24,000.
  C) The break-even point will decrease by 4000.
  D) The break-even point will increase by 20,000.

Question 2

Fixed costs for a product are 30,000. The product itself sells for 3.00 and it costs 1.50 to make each product. How can the plant decrease the break-even point by 5000 units?
 
  A) Increase P, the price of the item, by 0.50.
  B) Increase TFC, the fixed costs for item, by 5000.
  C) Decrease P, the price of the item, by 0.50.
  D) Decrease TFC, the fixed costs for item, by 5000.

[ashely1112]

Answer to Question 1

Answer: A
Explanation: Plugging in the variables for the original break-even point, BE = TFC/(P - VC), you get BE = 60,000/(4 - 1), or 20,000 for BE. Changing the value of VC gives BE = 60,000/(4 - 1.50), or 24,000 for BE. Therefore, the value of BE increases from 20,000 to 24,000, or 4000.

Answer to Question 2

Answer: A
Explanation: Plugging in the variables for the original break-even point, BE = TFC/(P - VC), you get BE = 30,000/(3 - 1.50), or 20,000 for BE. Changing the value of P by 50 cents gives BE = 30,000/(3.50 - 1.50), or 15,000 for BE, giving a break-even point that is 5000 lower than the original break-even point.