If a company has a contribution margin of $30 per unit and fixed costs of $90,00

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Question: If a company has a contribution margin of $30 per unit and fixed costs of $90,000, how many units must it sell to break even?

Options:

Correct Answer: 3,000 units

Solution:

Break-even units = Fixed Costs / Contribution Margin = 90,000 / 30 = 3,000 units.

If a company has a contribution margin of $30 per unit and fixed costs of $90,000, how many units must it sell to break even?

If a company has a contribution margin of $30 per unit and fixed costs of $90,000, 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: Identify the fixed costs. In this case, the fixed costs are $90,000.
Step 3: Identify the contribution margin per unit. Here, it is $30 per unit.
Step 4: Use the break-even formula: Break-even units = Fixed Costs / Contribution Margin.
Step 5: Plug in the numbers: Break-even units = 90,000 / 30.
Step 6: Calculate the result: 90,000 divided by 30 equals 3,000 units.
Step 7: Conclude that the company must sell 3,000 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 to achieve profitability.