Question

The 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

Radio company fixed cost is $140,000

$22.50 is the variable cost per unit

Selling price is $30 of radio

Radio contribution margin per unit

= selling price - variable cost

Contribution margin per unit of radio

= 30 - 22.50 = $7.50

Radio contribution margin ratio

    = (contribution margin per unit / selling price) × 100

Contribution margin radio of ratio

= (7.50 / 30) × 100 = 25%

Radio contribution break even point in dollar sales

= fixed cost / contribution margin ratio

= 140,000 / 25% = $560,000

Break even point of radio in sales dollar is $560,000.