Gitli Company sells its product for $ 55 and has variable cost of $ 30 per unit. The total fixed costs are $ 25 comma 000. What will be the effect on the breakeven point in units if variable cost increases by $ 5 due to an increase in the cost of direct materials? (Round your answer up to the nearest whole unit.) A. It will increase by 250 units. B. It will decrease by 175 units. C. It will decrease by 250 units. D. It will increase by 175 units.

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facundobuzzetti facundobuzzetti · Answer 1 · 2020-03-04T01:33:24+01:00

Answer:

The correct answer is A.

Explanation:

Giving the following information:

Gitli Company sells its product for $ 55.

Unitary variable cost= $30 per unit.

The total fixed costs are $25,000.

New unitary cost= $35

To determine the effect, first, we need to calculate the previous break-even point in units, using the following formula:

Break-even point= fixed costs/ contribution margin

Break-even point= 25,000/ (55 - 30)= 1,000 units

Now, with the new variable unitary cost:

Break-even point= 25,000/ (55 - 35)= 1,250 units