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Moe's Garage management has budgeted the following amounts for its next fiscal year: Total fixed expenses $500,000 Selling price per unit $45 Variable expenses per unit $25 If Moe's can reduce fixed expenses by $20,000, by how much can variable expenses per unit increase and still allow the company to maintain the original breakeven sales in units? A) $19
Moe's Garage management has budgeted the following amounts for its next fiscal year:
|
Total fixed expenses |
$500,000 |
|
Selling price per unit |
$45 |
|
Variable expenses per unit |
$25 |
If Moe's can reduce fixed expenses by $20,000, by how much can variable expenses per unit increase and still allow the company to maintain the original breakeven sales in units?
A) $19.20
B) $25.80
C) $0.80
D) $20.00
Expert Solution
Answer: C
Explanation: C)
Sales $45.00
Less Variable expenses 25.00
Contribution Margin $20.00
Fixed expense $500,000 / $20 = 25,000 BE Units
Reduction $20,000 / 25,000 units = $ 0.80
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