Moe's Garage management has budgeted the following amounts for its next fiscal year:
Total fixed expenses $500,000
Selling price per unit $45
Variable expenses per unit $25
If Moe's can reduce fixed expenses by $20,000, by how much can variable expenses per unit increase and still allow the company to maintain the original breakeven sales in units?
A) $19.20
B) $25.80
C) $0.80
D) $20.00
C
Explanation: C)
Sales $45.00
Less Variable expenses 25.00
Contribution Margin $20.00
Fixed expense $500,000 / $20 = 25,000 BE Units
Reduction $20,000 / 25,000 units = $ 0.80
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