If a company has a contribution margin of $30 per unit and fixed costs of $150,0

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Question: If a company has a contribution margin of $30 per unit and fixed costs of $150,000, how many units must be sold to break even?

Options:

Correct Answer: 5,000 units

Solution:

Break-even point in units = Fixed Costs / Contribution Margin per unit = $150,000 / $30 = 5,000 units.

If a company has a contribution margin of $30 per unit and fixed costs of $150,000, how many units must be sold to break even?

If a company has a contribution margin of $30 per unit and fixed costs of $150,000, how many units must be sold to break even?

Step 1: Understand the terms. The contribution margin is the amount of money made from each unit sold after covering variable costs. Here, it is $30 per unit.
Step 2: Know what fixed costs are. Fixed costs are expenses that do not change regardless of how many units are sold. In this case, the fixed costs are $150,000.
Step 3: Use the break-even formula. The formula to find the break-even point in units is: Break-even point in units = Fixed Costs / Contribution Margin per unit.
Step 4: Plug in the numbers. Substitute the fixed costs ($150,000) and the contribution margin ($30) into the formula: Break-even point in units = $150,000 / $30.
Step 5: Calculate the result. Divide $150,000 by $30, which equals 5,000 units.
Step 6: Conclusion. The company must sell 5,000 units to break even.

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