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A firm sells its product for $40 per unit. Its direct material costs are $7 per...

A firm sells its product for $40 per unit. Its direct material costs are $7 per unit and direct labour costs are $3. Fixed manufacturing overhead costs are $68,750 and variable overhead costs are $8 per unit. Calculate the required sales in dollars to break even.

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Answer #1

Answer:

Break Even Sales (in Dollars) = Fixed Cost / Contribution Margin Ratio
Contribution Margin Ratio = Contribution Margin per Unit / Selling Price per Unit * 100
Variable Expense per Unit = $7 + $3 + $8
Variable Expense per Unit = $18

Contribution Margin per Unit = Selling Expense per Unit – Variable Expense per unit
Contribution Margin per Unit = $40 - $18
Contribution Margin per Unit = $22

Contribution Margin Ratio = 22 / 40 * 100
Contribution Margin Ratio = 55%

Break Even Sales (in Dollars) = 68,750 / 0.55
Break Even Sales (in Dollars) = $125,000

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