Question

Break-Even in Units, Target Income, New Unit Variable Cost, Degree of Operating Leverage, Percent Change in Operating IncomeReagan, Inc., has developed a chew-proof dog bed—the Tuff-Pup. Fixed costs are $224,000 per year. The average price for the Tuff-Pup is $37, and the average variable cost is $23 per unit. Currently, Reagan produces and sells 20,000 Tuff-Pups annually.

Required:
1. How many Tuff-Pups must be sold to break even? units

Answer 1

Reagan, Inc. needs to sell 16,000 Tuff-Pups to break even.

Step-by-step explanation:

To calculate the break-even point, we need to determine the number of units that need to be sold in order to cover all the fixed costs. In this case, the fixed costs for Reagan, Inc. are $224,000 per year. The formula to calculate the break-even point in units is:

Break-even point (in units) = Fixed costs / Unit contribution margin

The unit contribution margin is the difference between the average price and the average variable cost, which is $37 - $23 = $14. Plugging in the numbers, we get:

Break-even point (in units) = $224,000 / $14 = 16,000 units

Therefore, Reagan, Inc. needs to sell 16,000 Tuff-Pups to break even.