Question

a firm sells its product for $30 per unit. its direct material costs are $6 per unit and direct labour costs are $4. fixed manufacturing overhead costs are $40,000 and variable overhead costs are $8 per unit. calculate the required sales in dollars to break even.

Answer 1

To break even, the firm needs to generate enough sales to cover its total costs. We can calculate the required sales in dollars by considering the fixed manufacturing overhead costs and the total variable costs per unit. Using the formula provided, we find that the firm needs to generate $100,000 in sales to break even.

Step-by-step explanation:

To calculate the required sales in dollars to break even, we need to determine the total costs. Total costs include the fixed manufacturing overhead costs and the variable costs per unit.

Fixed manufacturing overhead costs = $40,000

Total variable costs per unit = direct material costs + direct labor costs + variable overhead costs = $6 + $4 + $8 = $18

The break-even point occurs when total revenue equals total costs. In this case, the formula to calculate the required sales in dollars to break even is:

Required sales = Fixed manufacturing overhead costs / (1 - (Total variable costs per unit / Sales price per unit))

Required sales = $40,000 / (1 - ($18 / $30)) = $40,000 / (1 - 0.6) = $40,000 / 0.4 = $100,000

Therefore, the required sales in dollars to break even is $100,000.