Question

Madison Company has provided the following information:

Sales price per unit $40
Variable cost per unit 18
Fixed costs per month $12,800

What is the amount of sales in dollars required for Madison to break even? (Round any percentages to two decimal places and your final answer to the nearest dollar.)
A) $711
B) $23,273
C) $582
D) $12,800

Answer 1

Madison Company needs to sell 582 units at $40 per unit to break even, totaling $23,273 option (b) in sales. This takes into account their fixed and variable costs.

Step-by-step explanation:

The Madison Company needs to calculate the break-even point in dollars, which is the amount of sales required to cover all costs. To determine this, we use the formula: Break-Even Point in Units = Fixed Costs / (Sales price per unit - Variable cost per unit). Then we multiply the Break-Even Point in Units by the Sales price per unit to get the Break-Even Point in Dollars.

Break-Even Point in Units = $12,800 / ($40 - $18) = $12,800 / $22 = 581.8181 units.

Since we cannot sell a fraction of a unit, we round up to the next whole unit, which gives us a Break-Even Point in Units of 582. Now, we calculate the Break-Even Point in Dollars: 582 units x $40 per unit = $23,273

Therefore, the answer is that Madison Company needs $23,273 in sales to break even.