If a company has fixed costs of $10,000 and a contribution margin per unit of $5

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Question: If a company has fixed costs of $10,000 and a contribution margin per unit of $50, how many units must be sold to break even?

Options:

Correct Answer: 200 units

Solution:

Break-even point (units) = Fixed Costs / Contribution Margin per Unit = $10,000 / $50 = 200 units.

If a company has fixed costs of $10,000 and a contribution margin per unit of $50, how many units must be sold to break even?

If a company has fixed costs of $10,000 and a contribution margin per unit of $50, how many units must be sold to break even?

Step 1: Identify the fixed costs. In this case, the fixed costs are $10,000.
Step 2: Identify the contribution margin per unit. Here, the contribution margin per unit is $50.
Step 3: Use the break-even formula: Break-even point (units) = Fixed Costs / Contribution Margin per Unit.
Step 4: Plug in the numbers: Break-even point (units) = $10,000 / $50.
Step 5: Calculate the result: $10,000 divided by $50 equals 200 units.
Step 6: Conclusion: The company must sell 200 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 production or sales.
Contribution Margin – The amount each unit contributes to covering fixed costs after variable costs are deducted.