Question

The following data pertain to last month's operations: Selling price $20 per unit Variable production cost...

The following data pertain to last month's operations:

Selling price $20 per unit
Variable production cost $12 per unit
Fixed production cost $3,000
Variable selling & administrative expenses $3 per unit
Fixed selling & administrative expenses $1,500



What is the break-even point in dollars?

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Homework Answers

Answer #1

Total variable cost per unit = Variable production cost + Variable selling and administrative expenses = $12 + $3 = $15

Contribution margin per unit = Selling price per unit - Total variable cost per unit = $20 - $15 = $5

Contribution margin ratio = [ Contribution margin per unit / Selling price per unit ] * 100 = [ $5 / $20 ] * 100 = 25%

Total fixed cost = Fixed production cost + Fixed selling and administrative expenses = $3,000 + $1,500 = $4,500

Break-even point in dollars = Total fixed cost / Contribution margin ratio = $4,500 / 25% = $18,000

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