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Employee are currently paid a Fixed salary cost of $240,000 per annum, but would instead be paid $200 per working day. On a typical day, staff can produce 40 units. Other fixed costs are $400,000 per annum.
The selling price of a unit $60 and material costs are $20 per unit.
What will be the effect of the change on the breakeven point and the level of operating risk?
Answer is: Breakeven point reduce by 4571 and operating gearing goes down.
My answer:- 400,000+ 240,000/40 = 16000 units
400,000 + 52000/40 = 11300 unitsIn future you must ask in the Ask the Tutor Forum if you want me to answer. This forum is for students to help each other 🙂
Currently, the fixed cost is $640,000 and the contribution per unit is $40 Therefore the current breakeven is 640,000 / 40 = 16,000 units.
In future the fixed costs will be $400,000 and the contribution will be 60 – (20 + 200/40) = $35 per unit.
Therefore the new breakeven will be 400,000/35 = 11,429 units, which is a fall if 4,571 units.
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