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Also, these costs are not directly attributable to production and this makes it vital that the company keeps these expenses under constant control.
Calculations
Break-even point
Break-even point = Fixed costs / (Unit Selling Price -- Unit Variable Cost)
Break-even point for the given data = 500,000 / (20-10) = 50,000
So, the firm has to sell 50,000 units at the current price levels to break-even. The break-even point in terms of dollars is 50,000 * $20 = $1,000,000
Increased Sale Price
When the sale price is increased to $25, the revenue required to break even is $1,250,000.
The firm is estimated to lose 10% of sales, so the units sold will be 45,000. This will bring the revenue to $1,125,000. So the expected...
This can bring profitability for the company in the long-run.
Additional fixed cost
When another $80,000 is added to the fixed cost, the new break-even point is
$580,000/10 = 58,000. The company has to sell an additional 8000 units to break-even.
Finally, the firm has to sell the following units to get a profit of $250,000.
The break-even is $1,000,000. So, an additional profit of $250,000 should bring the revenue to $1,250,000. The number of units at the rate of $20/per unit is 62500 units.
Therefore, the firm has to sell 62500…
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