Question

The following information is available for the 23,000 units of X Company's one product sold in 2017:

Selling price	$47.00
Variable costs per unit	$28.00
Total fixed costs	$506,000

In 2018, X Company expects sales to increase to 27,000 units, but it is uncertain what variable costs per unit will be. What must variable costs per unit be in order for X Company to break even in 2018?

Answer 1

Breakeven is a point at which a business is able to recover just the cost (Fixed and variable)

At breakeven point Contribution is equal to fixed cost. No profits are earned at breakeven point.

Contribution means sales minus variable cost.

What we have to do in this question is calculate maximum variable cost that can be paid and at which company breakeven.

Calculation of variable cost at break even
	Total	Per Unit
(A).    Sales(27000 x 47)	$ 1,269,000.00	$ 47.00
(B).     Less: Fixed cost	$      506,000.00
(A-B) Total variable cost	$      763,000.00	$ 28.26

Maximum variable cost = 763000 or 28.26 per unit in 2018.