Question

The GIF Audio Company is able to sell its newest wireless speaker for $52.95 per unit. Their fixed costs per period are $61,300 and they have a production capacity of 5,200 units per period. They would like to break-even when operating at 35% of capacity. In order for this to occur what do their variable costs per unit have to be?

Answer 1

Desired production level = Total capacity x 35 %

                                        = 5,200 x 0.35 = 1,820 units

Breakeven in units = Fixed cost/Contribution margin per unit

    1,820 = $ 61,300/ ($ 52.95 – VC)

1,820 x ($ 52.95 – VC) = $ 61,300

$ 96,369 - 1,820 VC = $ 61,300

$ 96,369 - $ 61,300 = 1,820 VC

1,820 VC = $ 35,069

VC = $ 35,069/1,820

      = $ 19.26868132 or $ 19.27

Variable cost per unit should be $ 19.27 to break-even at 35 % production level.