Question

Lets say the company found out they have to produce 140 000 units to break even. We know that variable costs per unit are 8580 dollars and selling price is 16500 dollars, we also know that total costs per unit are 13200 dollars and we need to find FIXED COSTS.
Using break even point formula:

BEP = Fixed costs/(revenue per unit - VC per unit) gives us the fixed costs 1108800000 dollars.

However, dividing this by 140000 gives us 7920 dollars of fixed costs per unit, which in turn does not match the formula TC/unit=VC/unit+FC/unit, which in that case, FC should equal 4620 dollars / unit as 13200-8580=4620

WHY IS THAT?

Answer 1

So we have a contribution per unit of $7920 per unit ($16500 - $8580 )

Total Cost Given is 13200 per unit out of which 8580 belongs to variable cost this give us Fixed cost per unit allocated $4620

Break Even Point gives us Total Fixed Cost of $1108800000 ( 140000*$7920)

But this fixed cost is allocated to each unit not on the basis of break even point but on the total production capacity or Budgeted Production of the company.

To calculate the production capacity we will divide total fixed cost by Fixed Cost allocated per unit i.e. $4620

Production Capacity or Budgeted Production units :- $1108800000/$4620

= 240000 units

From the above explanation you can understand that the Fixed Cost per unit of $4620 is allocated on the basis of production level of 240000 units and not 140000 which is break even point for the company.