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The management accountant of Caroline plc has calculated the following data:
selling price/unit $20
variable cost/unit $8
Fixed Overheads for next year $79104Its expected that products selling price and variable cost will increase by 8% and 5.2%
the change in break even point is
a) Rise by 9%
b)Rise by 2.8%
c)Fall by 2.8%
d) Fall by 9%My question is If we first calculate New s.p $21.6 and new var cost $8.416 and find cont of $13.184
then find C/S ratio of 61.03% (13.184/21.6)
then find Break even point in sales $129614 (79104/61.03%)
Old C/S RATIO 60%(12/20) Old Break even point in sales $131840(79104/60%)Change =129614-131840/131840
=1.68% fall
i am confused KINDLY HELP THANKSin the solution they have worked in units instead of sales, the answer IN THE KIT is D
they should have mention whether to use units or total revenue
shouldn’t the answer be same of increase or decrease whether we use break even units or revenue?
You are correct that they should have stated whether to use units or revenue, although given that the selling price is changing, units would be more sensible.
The answer will not be the same because the sales price per unit is changing.
The old breakeven in units is 131840/20 = 6592.
The new breakeven in units is 129614/21.6 = 6,000
Therefore a fall of 592/6592 = 9%
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