Question

sharp company makes and sells pencil sharpeners. the variable cost of each sharpener is $10. Sharpeners are sold for $30 each. Fixed operating expenses are $40,000
a) what is the break-even point in units
b) what is the break-even point in sales dollars
c) verify your answers by preparing a contribution margin formatted income statement at the break-even point

Answer 1

a)

Sale price per unit = $30

Variable cost per unit = $10

Contribution per unit = Sale price per unit - Variable cost per unit = $30 - $10 = $20

Fixed operating expenses = $40000

Break – even point in units = Fixed operating expenses/ Contribution per unit

= 40000/20 = 2000 units

b)

Break – even point in units = 2000

Sale price per unit = $30

Break – even point in sales dollars = 2000*30 = 60000

c)

Particulars	Amount ($)	Amount ($)
Revenues:
Sales at Break - even point @ 30 each	60000
Variable Costs:
Variable cost of 2000 units @ 10 each	20000
Contribution Margin		40000
Fixed Costs:
Fixed operating expenses		40000
Net Income		0