Question

Littleton, Inc., has fixed costs of $75,000 per month, variable costs of $5 per unit, and a sales price per unit of $30. What is the break-even quantity per month?

a) 2,143
b) 2,500
c) 3,000
d) 15,000

Answer 1

Littleton, Inc. needs to sell 3,000 units per month to break even, calculated by dividing the fixed costs of $75,000 by the contribution margin per unit of $25.

Step-by-step explanation:

The question asks for the calculation of the break-even quantity for Littleton, Inc. given the fixed costs, variable costs per unit, and sales price per unit. Break-even quantity is the number of units that need to be sold to cover all costs. To determine this, the fixed costs are divided by the contribution margin per unit, which is the difference between the sales price per unit and the variable cost per unit.

Here is the calculation for Littleton, Inc:

• Sales price per unit: $30
• Variable cost per unit: $5
• Fixed costs: $75,000 per month
• Contribution margin per unit: $30 - $5 = $25
• Break-even quantity = Fixed costs / Contribution margin per unit
• Break-even quantity = $75,000 / $25 = 3,000 units

Therefore, Littleton, Inc. must sell 3,000 units per month to break even.