Answered: Compute the breakeven point in units…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter16: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 2CE

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Patsy Smith is planning to sell her special knife for $15 per unit. She purchases units from a
local distributor for $6 each. She can return any unsold units for a full refund. Fixed costs for
booth rental, including lighting and security is $4500.
Required
a) Compute the breakeven point in units sold.
b) Suppose the unit purchased is $5 instead of $6, the fixed cost increases by $500, but
the selling price is unchanged. Compute the new breakeven point in units sold.
c) Using the above data, explain how cost behaviour affects Patsy Smith’s decisionmaking?

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