Question

Using the formula method, if fixed expenses are $5,000 and the contribution margin per item sold is $90, how many items need to be sold to break-even?

a) There is not enough information to calculate the break-even point.
b) 56 items
c) 100 items.
d) None of the above

Answer 1

To calculate the break-even point using the formula method, divide the fixed expenses by the contribution margin per item sold. In this case, the break-even point is approximately 56 items. The correct answer is (b) 56 items.

Step-by-step explanation:

To calculate the break-even point using the formula method, divide the fixed expenses by the contribution margin per item sold. In this case, the fixed expenses are $5,000 and the contribution margin per item sold is $90. So, the break-even point can be calculated as:

Break-even point = Fixed expenses / Contribution margin per item sold

Break-even point = $5,000 / $90

Break-even point ≈ 55.56

To break-even, approximately 56 items need to be sold. Therefore, the correct answer is (b) 56 items.