Fixed costs for a product are $60,000. The product itself sells for $4.00 and it costs $1.00 to make each product. How will the break-even point for the product change if the variable cost per unit goes up to $1.50?
A) The break-even point will increase by 4000.
B) The break-even point will increase by 24,000.
C) The break-even point will decrease by 4000.
D) The break-even point will increase by 20,000.
Answer: A
Explanation: Plugging in the variables for the original break-even point, BE = [TFC/(P - VC)], you get BE = $60,000/(4 - 1), or 20,000 for BE. Changing the value of VC gives BE = $60,000/(4 - 1.50), or 24,000 for BE. Therefore, the value of BE increases from 20,000 to 24,000, or 4000.
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