Question

Senbet Ventures is considering starting a new company to produce stereos. The sales price would be set at 1.5 times the variable cost per unit; the VC/unit is estimated to be $2.50; and fixed costs are estimated at $120,000. What sales volume would be required in order to break even, i.e., to have an EBIT of zero for the stereo business

Answer 1

Sales volume required to break even = 96,000 units

Step-by-step explanation:

Break-even Unit Sales =
`(Fixed Costs+Target Income)/(Contribution margin/unit)`

where:

Fixed costs = $120,000

Target income = $0 (company wants EBIT of zero)

Contribution margin/unit=Sales price/unit- Variable Costs/unit=
`(1.5*2.5)-2.5=3.75-2.5 =$1.25/unit`

Break-even Unit Sales =
`(120,000)/(1.25)=96,000 units`