If the contribution margin per unit is $20 and fixed costs are $40,000, how many

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Question: If the contribution margin per unit is $20 and fixed costs are $40,000, how many units must be sold to break even?

Options:

Correct Answer: 2,000

Solution:

Break-even Point (Units) = Fixed Costs / Contribution Margin per Unit = $40,000 / $20 = 2,000 units.

If the contribution margin per unit is $20 and fixed costs are $40,000, how many units must be sold to break even?

If the contribution margin per unit is $20 and fixed costs are $40,000, how many units must be sold to break even?

Step 1: Understand what contribution margin per unit means. It is the amount of money made from each unit sold after covering variable costs.
Step 2: Know what fixed costs are. These are costs that do not change regardless of how many units are sold, like rent or salaries.
Step 3: Identify the values given in the question. The contribution margin per unit is $20 and the fixed costs are $40,000.
Step 4: Use the break-even formula: Break-even Point (Units) = Fixed Costs / Contribution Margin per Unit.
Step 5: Plug in the numbers: Break-even Point (Units) = $40,000 / $20.
Step 6: Calculate the result: $40,000 divided by $20 equals 2,000 units.
Step 7: Conclude that you need to sell 2,000 units to break even.

Break-even Analysis – This concept involves calculating the number of units that must be sold to cover fixed costs, using the contribution margin per unit.