CVP

Betis limited is considering changing the way it is structured by asking its employee staff to become freelance. Employees are currently paid a fixed salary of $240k per annum, but would instead be paid $200 per working day. On a typical working day, staff can produce 40units. Other fixed costs are $400k pa.

Selling price per unit $60 and material costs per unit are $20.

What will the effect of the change on breakeven point of the business and the level of operational risk?

Solutions :
Current break even point = $640k/40 = 16,000 units
New breakeven point = $400k/35 = 11,429 units

Current contribution = $60-$20= $40
New contribution = $60-$20-$5= $35

Pls sir , could you assist on how the extra $5 deducted was calculated to get the new contribution of $35?

Thanks in advance