Bates Company Currently Produces and Sells 4,000 Units of a Product

question 91

Multiple Choice

Bates Company currently produces and sells 4,000 units of a product that has a contribution margin of $5 per unit.The company sells the product for a sales price of $20 per unit.Fixed costs are $20,000.The company has recently invested in new technology and expects the variable cost per unit to fall to $12 per unit.The investment is expected to increase fixed costs by $15,000.After the new investment is made,how many units must be sold to break even?

• A) 2,917 units
• B) 4,375 units
• C) 7,000 units
• D) 4,000 units

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Definitions:

Profitability

The degree to which a business or activity yields profit or financial gain, measured by the ratio of profit to revenues or investment.

Demand Curve

A graphical representation of the relationship between the price of a good or service and the quantity demanded for a given period, typically downward sloping.

Competitive Firm

A company that operates in a market where it must compete with other firms for customers.