If fixed costs are $50,000 and the contribution margin per unit is $25, how many
Practice Questions
Q1
If fixed costs are $50,000 and the contribution margin per unit is $25, how many units must be sold to break even?
1,000 units
2,000 units
2,500 units
3,000 units
Questions & Step-by-Step Solutions
If fixed costs are $50,000 and the contribution margin per unit is $25, how many units must be sold to break even?
Step 1: Identify the fixed costs. In this case, the fixed costs are $50,000.
Step 2: Identify the contribution margin per unit. Here, the contribution margin per unit is $25.
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) = $50,000 / $25.
Step 5: Calculate the result: $50,000 divided by $25 equals 2,000 units.
Step 6: Conclusion: 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.
Fixed Costs – These are costs that do not change with the level of production or sales, such as rent or salaries.
Contribution Margin – This is the amount each unit contributes to covering fixed costs after variable costs have been deducted.
