Elk Manufacturing has budgeted the following amounts for its next fiscal year:
Total fixed expenses $425,000
Selling price per unit $80
Variable expenses per unit $20
To maintain the original breakeven sales in units if fixed expenses were to increase by 20%, the selling price per unit would have to be
A) increased by 65.00%.
B) increased by 15.00%.
C) decreased by 15.00%.
D) decreased by 65.00%.
B
Explanation: B)
Current Sales price $80
Variable expense 20
Contribution margin 60
Fixed expenses $425,000
Units 7,083.33 (425,000 / 60ea )
New Fixed expense $510,000 (425,000 plus 20% increase)
Contribution margin 72 (510,000 / 7,083.33 units)
Plus variable expenses 20
New Selling price 92
Divided by Old Sales Price 80
Percentage increase 15%
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