Question

The erif company manufactures and sells a fire extinguisher. it pays $7,240 per month for rent and utilities, and $5,760 per month for management salaries. the variable costs are $23 per unit and each unit sells for $38. What sales volume (number of units) per month is required to break even?

A) 800 units

B) 850 units

C) 867 units

D) 900 units

Answer 1

To determine the break-even point for the ERIF company, the fixed costs are divided by the contribution margin (sale price per unit minus variable cost per unit). The calculation results in a break-even point of 867 units, meaning the company needs to sell at least 867 units per month to cover all costs.

Step-by-step explanation:

To calculate the break-even point for the ERIF company, we need to set the total costs equal to the total revenues, with the goal of finding the number of units that must be sold per month to achieve this balance. The fixed costs for the company are the sum of rent and utilities and management salaries, which total $7,240 + $5,760 = $13,000 per month. The variable cost per unit is $23, and each unit sells for $38.

The break-even point (BEP) in units can be calculated using the formula:

BEP (units) = Fixed Costs / (Selling Price per Unit - Variable Cost per Unit)

Plugging in the values we get:

BEP (units) = $13,000 / ($38 - $23)

BEP (units) = $13,000 / $15

BEP (units) = 866.67

Since you cannot sell a fraction of a unit, the company must sell 867 units to break even. Therefore, the answer is (C) 867 units.

This calculation is essential for the company to determine the minimum sales volume necessary to cover all its costs.

Therefore, the answer is (C) 867 units.