Question

In September, Smith Company had the following financial statement amounts related to producing 500 units: Direct materials $27,000 Depreciation expense 11,000 Sales revenue 95,000 Direct labour 23,000 Rent expense 25,000 How much is the break-even point, rounded to the nearest whole number?

Answer 1

Answer:

Break Even Point = Fixed Cost / Contribution margin per Unit
Contribution Margin = Sales – Variable Cost
Variable Cost = Direct Materials + Direct Labor
Variable Cost = $27,000 + $23,000 = $50,000

Contribution Margin = $95,000 - $50,000
Contribution Margin = $45,000

Contribution Margin per Unit = 45,000 / 500
Contribution Margin per Unit = $90

Fixed Cost = Rent Expense + Depreciation Expense
Fixed Cost = $25,000 + $11,000
Fixed Cost = $36,000

Break Even Point (in Units) = 36,000 / 90
Break Even Point (in Units) = 400 Units