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In a case study, a company has total fixed costs of $100,000 and sells its produ

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Question: In a case study, a company has total fixed costs of $100,000 and sells its product for $25. If the variable cost per unit is $15, how many units must be sold to break even?

Options:

  1. 5,000 units
  2. 10,000 units
  3. 15,000 units
  4. 20,000 units

Correct Answer: 10,000 units

Solution: 

Break-even point in units = Fixed Costs / (Selling Price - Variable Cost) = $100,000 / ($25 - $15) = 10,000 units.

In a case study, a company has total fixed costs of $100,000 and sells its produ

Practice Questions

Q1
In a case study, a company has total fixed costs of $100,000 and sells its product for $25. If the variable cost per unit is $15, how many units must be sold to break even?
  1. 5,000 units
  2. 10,000 units
  3. 15,000 units
  4. 20,000 units

Questions & Step-by-Step Solutions

In a case study, a company has total fixed costs of $100,000 and sells its product for $25. If the variable cost per unit is $15, how many units must be sold to break even?
  • Step 1: Identify the total fixed costs. In this case, it is $100,000.
  • Step 2: Identify the selling price per unit. Here, it is $25.
  • Step 3: Identify the variable cost per unit. In this case, it is $15.
  • Step 4: Calculate the contribution margin per unit by subtracting the variable cost from the selling price: $25 - $15 = $10.
  • Step 5: Use the break-even formula: Break-even point in units = Fixed Costs / Contribution Margin.
  • Step 6: Plug in the numbers: Break-even point in units = $100,000 / $10.
  • Step 7: Calculate the result: $100,000 / $10 = 10,000 units.
  • Break-even Analysis – The process of determining the number of units that must be sold to cover total fixed and variable costs.
  • Fixed Costs – Costs that do not change with the level of production or sales.
  • Variable Costs – Costs that vary directly with the level of production or sales.
  • Selling Price – The price at which a product is sold to customers.
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