Western Wear Co. is launching a new line of shirts. The following cost information relates to the product line.
Direct Materials, Direct Labor, and Distribution are all variable costs. The company will incur $180,000 of additional fixed costs associated with this new product. A corporate fixed charge of $30,000 currently absorbed by other products will be allocated to this new product (on top of the $180,000 fixed costs associated directly with this new product).
If the selling price is $24 per unit, the breakeven point in units (rounded to the nearest hundred) for shirts is:
The answer is 20,000 units.
As per the otb for breakeven point only 1,80,000 should be considered as fixed cost and not the additional allocated fixed cost of 30,000. Can someone explain why we cant consider 30,000.
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