Gitli Company sells its product for $ 55 and has variable cost of $ 30 per unit. The total fixed costs are $ 25 comma 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? (Round your answer up to the nearest whole unit.) A. It will decrease by 667 units. B. It will increase by 167 units. C. It will decrease by 167 units. D. It will increase by 667 units.

D. It will increase by 667 units.

Explanation:

The calculation of break-even point is shown below:-

Contribution Per Unit (before increase in Variable Cost) = Unit sale price - Unit Variable Cost

= $55 - $30

= $25

Break-Even (Units) = Fixed Cost ÷ Division Contribution per unit

= $25,000 ÷ $25

= 1,000

New Variable Cost per unit = $30 + $10 (Increase in Direct material cost) = $40

Selling Price = $55

New Contribution per unit = $55 - $40 = $15

New Break-Even (Units) = Fixed Cost ÷ New Contribution per unit

= $25,000 ÷ $15

= 1,667

Increase in Break-Even Units(after increase in D.M cost) = New Break even point - Old Break even point

= 1,667 - 1,000 units

= 667 units

Therefore, The Break even points units will increase by 667 units, if the D.M cost increases by $10 per unit.

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