Question

A company sells a product which has a unit sales price of $5, unit variable cost of $3 and total fixed costs of $240,000. The number of units the company must sell to break even is Select one: a. 120,000 units b. 48,000 units c. 480,000 units d. 80,000 units

Answer 1

a. 120,000 units

Step-by-step explanation:

The formula to compute the break even point is shown below:

= (Total fixed cost) ÷ (Contribution margin per unit)

where,

Contribution margin per unit = Selling price per unit - Variable expense per unit

= $5 - $3

= $2 per unit

And, the total fixed cost is $240,000

So, the break even point in units is

= $240,000 ÷ $2 per unit

= 120,000 units