Question

Tim Taylor has written a self improvement book that has the following cost characteristics:

Selling Price	$16.00 per book
Variable cost per unit:
Production	$4.00
Selling & administrative	2.00
Fixed costs:
Production	$91,600 per year
Selling & administrative	25,200 per year

How many units must be sold to break-even?

Round to two decimal places.

Your Answer:

Answer 1

Break even point in units = Total fixed costs / Contribution per unit

Here,

I) Total fixed cost = Production fixed costs + Selling & administrative fixed costs

Total fixed cost = 91600 + 25200 = 116800

II) Contribution per unit = Sales price - (Variable cost ie. Production + Selling & administration)

Contribution per unit = 16 - (4 +2) = 16 - 6 = 10

Now, putting the values into the formula:

Break even point in units = 116800 / 10 = 11680 units.

Ans: 11680 units to be sold to break even.