Question

Beard Company sells a product for $15 per unit. The variable cost is $10 per unit, and fixed costs are $1,750,000. Determine (a) the break-even point in sales units and (b) the sales units required for the company to achieve a target profit of $400,000.

Answer 1

a. Contribution margin = Selling price - Variable cost per unit

Contribution margin = $15 - $10

Contribution margin = $5 per unit

Break even point in units = Fixed cost / Contribution margin

Break even point in units = $1,750,000 / $5

Break even point in units = 350,000 units

b. Required sale = Fixed cost + Target profit / Contribution margin

Required sale = $1,750,000 + $400,000 / $5

Required sale = $2,150,000 / $5

Required sale = 430,000 units