Question

Shock Electronics sells portable heaters for $43 per unit, and the variable cost to produce them is $26. Mr. Amps estimates that the fixed costs are $100,300.

a. Compute the break-even point in units.
  

Break-even point

units

    
b. Fill in the following table (in dollars) to illustrate that the break-even point has been achieved.
  

Sales
Fixed costs
Total variable costs
Net profit (loss)	$0

Answer 1

Selling price = $43 per unit

Variable cost = $26 per unit

Fixed cost = $100,300

Contribution margin = Selling price per unit - Variable cost per unit

= 43 - 26

= $17

(a) Break even point (in units) = Fixed cost/Contribution margin

= 100,300/17

= 5,900

(b)

Sales (5,900 x 43)	253,700
- Variable cost (5,900 x 26)	-153,400
Contribution margin	100,300
- Fixed cost	-100,300
Net profit (Loss)	0

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