Question

Peak Industries sells treadmills for $850 each. The firm has variable costs per unit of $385 and total fixed costs of $225,000. What is Peak's break-even point in units?

a. 484 treadmills
b. 585 treadmills
c. 183 treadmills
d. 265 treadmills

Answer 1

Peak Industries' break-even point is calculated as the total fixed costs divided by the contribution margin (selling price per unit minus variable cost per unit). It comes out to be 484 treadmills, so the correct answer is (a) 484 treadmills.

Step-by-step explanation:

To determine Peak Industries' break-even point in units, you need to calculate the number of treadmills they must sell to cover all their costs. The break-even point formula is fixed costs divided by the price per unit minus variable costs per unit (contribution margin).

The calculation would be as follows:

Break-even point in units = Total Fixed Costs / (Selling price per unit - Variable cost per unit)

Break-even point in units = $225,000 / ($850 - $385)

Break-even point in units = $225,000 / $465

Break-even point in units = 483.87, which rounds up to 484 treadmills.

Therefore, the correct answer is (a) 484 treadmills.