Question

If a company has fixed costs of $6,000 per month and their product that sells for $200 has a contribution margin ratio of 30%, how many units must they sell in order to break even?

a. 100
b. 180
c. 200
d. 2,000

Answer 1

To calculate the break-even point in units, divide the fixed costs by the contribution margin ratio. In this case, the company must sell 20,000 units to break even.

Step-by-step explanation:

To calculate the number of units the company must sell in order to break even, we need to divide the fixed costs by the contribution margin ratio. The contribution margin ratio is the percentage of the selling price that contributes to covering the fixed costs and generating a profit. In this case, the contribution margin ratio is 30%, or 0.30. The fixed costs are $6,000 per month. We can use the formula:

Break-even point (in units) = Fixed costs / Contribution margin ratio

Plugging in the values, we get:

Break-even point (in units) = $6,000 / 0.30 = 20,000 units

Therefore, the company must sell 20,000 units in order to break even.