If a company has fixed costs of $50,000 and a contribution margin of $20 per uni

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Question: If a company has fixed costs of $50,000 and a contribution margin of $20 per unit, how many units must it sell to break even?

Options:

Correct Answer: 2,500 units

Solution:

To find the break-even point, divide fixed costs by the contribution margin: $50,000 / $20 = 2,500 units.

If a company has fixed costs of $50,000 and a contribution margin of $20 per unit, how many units must it sell to break even?

If a company has fixed costs of $50,000 and a contribution margin of $20 per unit, how many units must it sell to break even?

Step 1: Identify the fixed costs. In this case, the fixed costs are $50,000.
Step 2: Identify the contribution margin per unit. Here, the contribution margin is $20 per unit.
Step 3: To find the break-even point, use the formula: Break-even point (in units) = Fixed Costs / Contribution Margin.
Step 4: Plug in the numbers: Break-even point = $50,000 / $20.
Step 5: Calculate the result: $50,000 divided by $20 equals 2,500 units.
Step 6: Conclusion: The company must sell 2,500 units to break even.

Break-even Analysis – The process of determining the number of units that must be sold to cover all fixed and variable costs.
Fixed Costs – Costs that do not change with the level of production or sales.
Contribution Margin – The amount each unit contributes to covering fixed costs after variable costs are subtracted.