A product line offered by Global Company sells for an average of $20 per unit with a weighted average variable cost per unit of $8.00. Fixed costs assigned to this product line are $4,800,000. Possible changes in government policies related to trade and tariffs may result in a 20% tariff being imposed on each unit sold. To determine the impact of a possible tariff on their break-even point, Global wants to calculate the number of additional units they will need to sell to break-even if a tariff is imposed. If Global must pay a tariff equal to 20% of the average revenue per unit, how many additional units will Global need to sell to achieve break-even?
A. 60,154
B. 80,000
C. 200,000
D. 480,000
E. none of the above
To assess the impact of a potential 20% tariff on Global Company’s break-even point, we need to calculate how many additional units they must sell to cover the increased costs resulting from the tariff. Let’s break down the calculations step by step.
Current Cost Structure
Average Revenue per Unit = $20
Weighted Average Variable Cost per Unit = $8.00
Fixed Costs = $4,800,000
Break-Even Point Formula: The break-even point is the level of sales at which total revenue equals total costs. The formula to calculate the break-even point in units is: �����−���������(�������)=�����������������������������−�������������������
Calculate the Current Break-Even Point: Break-Even Point (in units) = \frac{$4,800,000}{$20 – $8.00} = \frac{$4,800,000}{$12.00} = 400,000\ units
So, Global Company’s current break-even point is 400,000 units.
Impact of the 20% Tariff
Tariff per Unit = 20% of Average Revenue per Unit = 0.20 * $20 = $4.00
The tariff adds an extra $4.00 in cost per unit sold.
New Break-Even Point with Tariff: To find the new break-even point with the tariff, we need to consider the increased variable cost due to the tariff. ��������−���������(�������)=�����������������������������−(�������������������+�������������) New Break-Even Point (in units) = \frac{$4,800,000}{$20 – ($8.00 + $4.00)} = \frac{$4,800,000}{$8.00} = 600,000\ units
Additional Units Required to Break Even with Tariff
To determine how many additional units Global needs to sell to break even with the tariff, we subtract the original break-even point from the new break-even point: �����������������������=��������−���������−������������−��������� �����������������������=600,000�����−400,000�����=200,000�����
So, Global Company will need to sell an additional 200,000 units to achieve break-even if a 20% tariff is imposed.
Therefore, the correct answer is C. 200,000 units.
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