Question

# American Apparel, Inc. has fixed annual operating costs of \$325,000. The average selling price per                         unit...

American Apparel, Inc. has fixed annual operating costs of \$325,000. The average selling price per

unit is \$45.00and the variable cost per unit is \$34.00.  Based on this information, calculate the

breakeven sales level in units.

Solution:

The formula for calculating Break even Point in sales units is

= Fixed cost / Contribution margin

Where Contribution margin = Selling price per unit – Variable cost per unit

As per the information given in the question we have

Selling price per unit = \$ 45    ;      Variable cost per unit = \$ 34

Contribution margin = \$ 45 - \$ 34 = \$ 11   ;      Fixed Cost = \$ 325,000

Therefore the Break even point = \$ 325,000 / \$ 11 = 29,545.45

The Break even sales in units = 29,545.45 units

= 29,545 units ( when rounded off to the nearest whole number )

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