Question

A company sells its products for $30 per unit. It has annual fixed cost of $150,000 and variable costs of $10 per unit. The company has a capacity to make 100,000 units per year. How many units must be sold to breakeven?

Answer 1

The company must sell 7,500 units to break even, calculated by dividing the fixed costs ($150,000) by the difference between the selling price per unit ($30) and the variable cost per unit ($10).

Step-by-step explanation:

Break-even Analysis

To calculate the number of units that must be sold to break even, we use the formula:

Break-even Quantity = Fixed Costs /(Selling Price per Unit - Variable Cost per Unit)

Here, the fixed costs are $150,000, the selling price per unit is $30, and the variable cost per unit is $10.

Substituting into the formula gives us:

Break-even Quantity = $150,000 / ($30 - $10) = $150,000 / $20 = 7,500 units.

Therefore, the company must sell 7,500 units to break even.