36.  CPA- A ceramics manufacturer sold cups last year for $7.50 each.  Variable costs of manufacturing were $2.25 per unit.  The company needed to sell 20,000 cups to break even.  Net income was $5,040.  This year, the company expects the price per cup to be $9.00; variable manufacturing costs to increase 33.3%; and fixed costs to increase 10%.  How many cups (rounded) does the company need to sell this year to break even?

a. 17,111 b. 17,500 c. 19,250 d. 25,667 Explanation Choice "c" is correct.  

Ignore the Net Income $5,040.  Irrelevant information.

Last year:

Selling price was 7.50, variable cost was 2.25, leaving 5.25 per cup to cover fixed costs.

5.25 per cup available for fixed costs x 20,000 cups to break even = 105,000 total fixed costs.

This year:

Variable costs up 33.3%.  2.25 x 1.33333 = 3.00 variable cost per cup.

Fixed costs up 10%.  105000 x 1.1 = 115,500 total fixed costs.

Selling price 9.00 - 3.00 VC = 6.00 available per cup to cover fixed costs.

115,500 / 6.00 = 19,250 cups to sell to break even