Question

A product sells for $200 per unit, and its variable costs are 65% of sales. The fixed costs are $420,000. What is the break-even point in sales dollars?

a. $2,100.
b. $6,000.
c. $420,000.
d. $646,154.
e. $1,200,000.

Answer 1

To calculate the break-even point in sales dollars, determine the level of sales at which the total revenue equals the total cost. Using the given information, the break-even point is $6,000. The correct answer is option b.

Step-by-step explanation:

To calculate the break-even point in sales dollars, we need to determine the level of sales at which the total revenue equals the total cost. The fixed costs are $420,000, and the product sells for $200 per unit. The variable costs are 65% of sales.

Let's assume x represents the number of units sold. The equation for total revenue is TR = 200x, and the equation for total cost is TC = 420,000 + 0.65(200x).

Setting TR equal to TC, we can solve for x:

200x = 420,000 + 0.65(200x)

200x - 130x = 420,000

70x = 420,000

x = 420,000 / 70

x = 6,000

Therefore, the break-even point in sales dollars is $6,000.