Our friend Bob, with whom we are getting quite well acquainted by now, is experiencing rising costs for the appliances he sells. He is wondering how this change will affect his breakeven point. Table 10.1, Refrigerator Contribution Margin, represents a typical refrigerator sale for Bob.
Here is Bob’s breakeven point before the change in cost:
This translates into $1,250,000 sales ($1,000 per unit × 1,250 refrigerators) needed to break even.
Recently, the manufacturer notified Bob that his cost to purchase a refrigerator would go up from $650 to $700. Assume that local competition will not allow Bob to increase the selling ...