A Level Accounting (9706)•9706/12/M/J/20
Explanation
New Break-Even Point After Price and Cost Adjustments
Steps:
- New selling price = 3 = $11 per unit.
- New variable cost = 1 = $7 per unit.
- New contribution margin per unit = 7 = $4.
- New break-even point = fixed costs / contribution margin = 4 = 24,000 units.
Why C is correct:
- Break-even point formula is fixed costs divided by contribution margin per unit, yielding 96,000 / (11 - 7) = 24,000 units exactly.
Why the others are wrong:
- A: 9,000 units ignores the reduced contribution margin, underestimating by using original data.
- B: 12,000 units mistakenly uses original contribution margin of $6 on new fixed costs.
- D: 48,000 units doubles the correct figure, possibly from halving the margin incorrectly.
Final answer: C
Topic: Costs and cost behaviour
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