Question

• A firm sells a product for $20.00 • Variable costs are $15.00 • Fixed costs are $250,000.00 A) What is the breakeven volume? B) What is the breakeven revenues? C) What volume is required to generate a profit of $ 300,000?

Answer 1

Contribution margin per unit = Selling price per unit - Variable costs per unit

= $20 - $15

= $5

Contribution margin ratio = Contribution margin per unit / Selling price per unit

= $5 / $20

= 0.25

A.

Break-even volume = Fixed costs / Contribution margin per unit

= $250,000 / $5

= 50,000 units

B.

Break-even revenues = Fixed costs / Contribution margin ratio

= $250,000 / 0.25

= $1,000,000

C.

Volume required = (Fixed costs + Desired profit) / Contribution margin per unit

= ($250,000 + $300,000) / $5

= 110,000 units