Flying Cloud Co. has the following operating data for its manufacturing operatio
ID: 2565633 • Letter: F
Question
Flying Cloud Co. has the following operating data for its manufacturing operations:
Unit selling price
$ 350
Unit variable cost
$ 100
Total fixed costs
$980,000
The company has decided to increase the wages of hourly workers which will increase the unit variable cost by 10%. Increases in the salaries of factory supervisors and property taxes for the factory will increase fixed costs by 5%. If sales prices are held constant, the next break-even point for Flying Cloud Co. will be:
Question 19 options:
increased by 368 units
decreased by 368 units
increased by 132 units
decreased by 264 units
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Unit selling price
$ 350
Unit variable cost
$ 100
Total fixed costs
$980,000
Explanation / Answer
The correct answer is increased by 368 units
Note :
Existing break-even point for Flying Cloud Co. = Fixed Cost / Contribution Margin Per Unit
= Fixed Cost / Sales Price Per Unit - Variable Cost per Unit
= $ 980,000 / ( $ 350 - $ 100)
= 3,920 Units
Revised Variable cost = $ 100 * 110%
= $ 110
Revised Fixed cost = $ 980,000 *105%
= $ 1,029,000
Hence, Revised
break-even point for Flying Cloud Co. = Fixed Cost / Contribution Margin Per Unit
= Fixed Cost / Sales Price Per Unit - Variable Cost per Unit
= $ 1,029,000 / ( $ 350 -$ 110)
= 4,287.5
= 4,288 units
Hence, Increase = 4,288 Units - 3920 Units
= 368 Units Increase