Question

Hurst Company sells hand-sewn shirts for $40 per shirt. It incurs monthly fixed costs of $7,000. The contribution margin ratio is calculated to be 50%. What is the breakeven point in units? (Round your answer up to the nearest whole unit.)

A) 175 units
B) 3,500 units
C) 80 units
D) 350 units

Answer 1

The breakeven point in units is 350 units.

Step-by-step explanation:

To calculate the break-even point in units, we need to divide the total fixed costs by the contribution margin ratio. The contribution margin ratio is the percentage of revenue that goes towards covering variable costs. In this case, the contribution margin ratio is 50%, so the break-even point in units can be calculated as follows:

Break-even point = Fixed Costs / Contribution Margin Ratio

Given that the fixed costs are $7,000 and the contribution margin ratio is 50%, the break-even point is:

Break-even point = $7,000 / 50% = $14,000

Since each shirt is sold for $40, the break-even point in units can be calculated by dividing the break-even point in dollars by the selling price per unit:

Break-even point in units = $14,000 / $40 = 350 units

Therefore, the breakeven point in units is 350 units.