Question

1. (a). What is the break-even point, explain with a good example and a diagram (b). A company sells a product at $35 per unit. The variable cost for the product is $30 per unit and its fixed cost is $70,000 i, what is the quantity the firm must sell to break even ii what is the break-even point in dollars

Answer #1

**Break-even point:**

It is a point where there is no loss or no profit.

**Example:**

At break-even revenues = costs

Contribution margin per unit = Selling price per unit - Variable cost per unit = $35-$30 = $5

I. Break-even point in units = Fixed costs ÷ Contribution margin per unit = $70,000 ÷ $5 = 14,000 units

II. Break-even point in dollars = Break-even point in units x Selling price per unit = 14,000 units x $35 = $490,000

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