Question

Eunice buys a worm farm. She plans to sell a small carton of worms to people who want to fish for $3. Her fixed costs are $1,201, and her variable cost for each carton sold is $.75. How many cartons of worms does Eunice need to sell to reach her break-even quantity?

A. 2712
B. 400
C. 534
D. 321
E. 888

Answer 1

C. 534 units

Step-by-step explanation:

The formula to compute the break-even point is shown below:

= (Fixed cost) ÷ (Contribution margin per unit)

where,

Contribution margin per unit = Selling price per unit - Variable expense per unit

= $3 - $0.75

= $2.25

So, the break-even point would be

= $1,201 ÷ $2.25 per unit

= 534 units

Simply we divide the fixed cost by the contribution margin per unit so that the accurate units can come.