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 it sell to break even?

Options:

Correct Answer: 10,000 units

Solution:

Break-even point (units) = Fixed Costs / Contribution Margin = $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 it sell to break even?

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

Step 1: Understand what contribution margin means. It is the amount of money made from each unit sold after covering variable costs.
Step 2: Know that fixed costs are the expenses that do not change regardless of how many units are sold. In this case, fixed costs are $150,000.
Step 3: To find the break-even point, we need to determine how many units need to be sold to cover the fixed costs using the contribution margin.
Step 4: Use the formula: Break-even point (units) = Fixed Costs / Contribution Margin.
Step 5: Plug in the numbers: Break-even point (units) = $150,000 / $30.
Step 6: Calculate the result: $150,000 divided by $30 equals 5,000 units.
Step 7: Conclude that the company must sell 5,000 units to break even.

Break-even Analysis – This concept involves calculating the number of units that must be sold to cover fixed and variable costs, using the contribution margin.
Contribution Margin – The contribution margin is the amount each unit contributes to covering fixed costs after variable costs have been deducted.
Fixed Costs – Fixed costs are expenses that do not change with the level of production or sales, and must be covered regardless of sales volume.