A company has fixed costs of $30,000 and a contribution margin of $15 per unit.

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Question: A company has fixed costs of $30,000 and a contribution margin of $15 per unit. How many units must be sold to break even?

Options:

Correct Answer: 2,000 units

Solution:

Break-even Point (in units) = Fixed Costs / Contribution Margin per Unit = $30,000 / $15 = 2,000 units.

A company has fixed costs of $30,000 and a contribution margin of $15 per unit. How many units must be sold to break even?

A company has fixed costs of $30,000 and a contribution margin of $15 per unit. How many units must be sold to break even?

Step 1: Identify the fixed costs. In this case, the fixed costs are $30,000.
Step 2: Identify the contribution margin per unit. Here, the contribution margin is $15 per unit.
Step 3: Use the break-even formula: Break-even Point (in units) = Fixed Costs / Contribution Margin per Unit.
Step 4: Plug in the numbers: Break-even Point = $30,000 / $15.
Step 5: Calculate the result: $30,000 divided by $15 equals 2,000 units.
Step 6: Conclusion: The company must sell 2,000 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 output, such as rent and salaries.
Contribution Margin – The amount each unit contributes to covering fixed costs and generating profit, calculated as sales price minus variable costs.