Lightfoot Company sells its product for $55 and has variable cost of $30 per unit
The total fixed costs are $25,000. What will be the effect on the breakeven point in units if variable cost increases by $10 due to an increase in the cost of direct materials?
A) It will increase by 667 units.
B) It will decrease by 667 units.
C) It will decrease by 175 units.
D) It will increase by 175 units.
A .A) Breakeven point (before increase in cost of direct materials) = $25,000 / ($55 - $30 ) = 1,000 units
Breakeven point (after increase in cost of direct materials) = $25,000 / ($55 - $40 ) = 1,667 units
Increase in breakeven point = 1,667 - 1,000 = 667 units
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