Allison Cobb sells homemade knit scarves for $ 25 each at local craft shows. Her contribution margin ratio is 60%. Currently, the craft show entrance fees cost Allison $ 900 per year. The craft shows are raising their entrance fees by 10% next year. How many extra scarves will Allison have to sell next year just to pay for rising entrance fee costs? Begin by identifying the general formula to compute the breakeven sales in units.

Allison will have to sell 6 extra scarves next year just to pay for rising entrance fee costs.

Formula :

Break-Even point ( in units)= Fixed Costs ÷ (Sales price per unit – Variable costs per unit)

Given, Price of knit scarves = $25

Contribution margin ratio = 60%

Contribution margin per unit = (Price of knit scarves) x (Contribution margin ratio )

= $(25 x 0.60 )

= $15

Current entrance fees = $900

Percentage in increase in entrance fees = 10%

Increase in entrance fees = 10% of  $900 = $90

Extra scarves to be sold

Allison will have to sell 6 extra scarves next year just to pay for rising entrance fee costs.

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