A business has fixed costs of $50,000 and a contribution margin of $10 per unit.

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Question: A business has fixed costs of $50,000 and a contribution margin of $10 per unit. How many units must be sold to break even?

Options:

Correct Answer: 5,000

Solution:

Break-even point (units) = Fixed costs / Contribution margin = $50,000 / $10 = 5,000 units

A business has fixed costs of $50,000 and a contribution margin of $10 per unit. How many units must be sold to break even?

A business has fixed costs of $50,000 and a contribution margin of $10 per unit. How many units must be sold to break even?

Step 1: Identify the fixed costs of the business. In this case, the fixed costs are $50,000.
Step 2: Identify the contribution margin per unit. Here, the contribution margin is $10 per unit.
Step 3: Use the break-even formula, which is: Break-even point (units) = Fixed costs / Contribution margin.
Step 4: Plug in the numbers: Break-even point (units) = $50,000 / $10.
Step 5: Calculate the result: $50,000 divided by $10 equals 5,000 units.
Step 6: Conclude that the business must sell 5,000 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.