Question

If a company has sales of 10,590,000, fixed costs of 2,840,000 and a contribution margin of 5,610,000, and sells 50,000 units what is its breakeven number of units? Put your answer to two decimal places

Answer 1

The breakeven number of units for the company in question is 25,311.05 units, calculated by dividing the fixed costs by the contribution margin per unit.

Step-by-step explanation:

To calculate a company's breakeven number of units, we need to understand the cost structure of the company. The breakeven point is when total revenue equals total expenses (fixed costs plus variable costs), resulting in zero profit.

The contribution margin is the sales revenue per unit minus the variable cost per unit. This margin contributes towards covering the fixed costs. Once fixed costs are covered, the contribution margin goes towards profit.

The formula to calculate the breakeven number of units is:

Breakeven Units = Fixed Costs ÷ Contribution Margin per Unit

To find the contribution margin per unit, we divide the total contribution margin by the number of units sold:

Contribution Margin per Unit = $5,610,000 ÷ 50,000 units = $112.20 per unit

Now we can calculate the breakeven number of units:

Breakeven Units = $2,840,000 ÷ $112.20 per unit

Breakeven Units = 25,311.05 units

To two decimal places, the company needs to sell 25,311.05 units to breakeven.