Question

Wonderland Company makes radios that sell for $30 each. For the coming year, management expects fixed costs to total $140,000 and variable costs to be $22.50 per unit.

Calculate the break-even point in dollars.

Answer 1

Question: Calculate the break-even point in dollars.

Answer:

[Break-even point in dollars = Fixed cost / Contribution margin]

Contribution margin ( in units ) = (Sales price per unit - variable price per unit)

Contribution margin( in dollars) = [(Sales price per unit - variable price per unit)/ Sales price per unit ]

• As, it is mentioned in the question that the break-even point should be in dollars. We use the contribution margin in dollars.
• Given that,

Sales price per unit = $30 each

variable price per unit = $22.50 per unit.

Fixed cost = $140,000

Contribution margin( in dollars) = [(Sales price per unit - variable price per unit)/ Sales price per unit ]

= [($30 - $22.50)/$30]

= [$7.50 / $30]

= 0.25

Break-even point in dollars = Fixed cost / Contribution margin

= $140,000 / 0.25

= $ 5,60,000.

• Therefore the Break-even point in dollars is $ 5,60,000.