Question

A company's product sells at $15 per unit and has a $7 per unit variable cost....

A company's product sells at $15 per unit and has a $7 per unit variable cost. The company's total fixed costs are $98,000.

The break-even point in units is:

a. 5,158.

b. 7,000.

c. 14,000.

d. 12,250.

e. 8,167.

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Homework Answers

Answer #1

Breakeven point is the point at which the company is having no profit or no loss. This means that company's contribution margin will be equal to the fixed costs.

Breakeven point in units = Fixed cost/Contribution margin per unit.

Contribution per unit = Selling price per unit - variable cost per unit.

Selling price per unit = $ 15 per unit.

Variable cost per unit = $ 7 per unit.

Contribution margin per unit = 15 - 7

Contribution margin per unit = $ 8 per unit.

Breakeven point in units = 98,000/8

Breakeven point in units = 12,250 units.

Hence, option D is the correct answer.

SUMMARY:

Here, calculated the breakeven point in units as 12,250 units by putting values in the equation. This means that if company sells 12,250 units they will be getting no profit or no loss which means that they are at breakeven point.

Hence, option D is the correct answer.

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