Question

Scrushy Company sells a product for $150 per unit. The variable cost is $110 per unit, and fixed costs are $200,000.

Determine (a) the break-even point in sales units and (b) the break-even point in sales units if the company desires a target profit of $50,000.

a. Break-even point in sales units
b. Break-even point in sales units if the company desires a target profit of $50,000

Answer 1

Contribution margin per unit = Selling price - Variable cost = $150 - $110 = $40

(a) Break-even point in sales units = Fixed costs / Contribution margin per unit

Break-even point in sales units = $200,000 / $40

Break-even point in sales units = 5,000 units

(b) Break-even point in sales units if the company desires a target profit of $50,000 = (Fixed costs + Target profit) / Contribution margin per unit

Break-even point in sales units if the company desires a target profit of $50,000 = ($200,000 + $50,000) / $40

Break-even point in sales units if the company desires a target profit of $50,000 = 6,250 units