Question

Smithson Cutting is opening a new line of scissors for supermarket distribution. It estimates its fixed cost to be $ 500.00 and its variable cost to be $ 0.50 per unit. Selling price is expected to average $ 0.75 per unit. ​a) For Smithson​ Cutting, the​ break-even point in units​ = 2000 units ​(enter your response as a whole​ number). ​b) For Smithson​ Cutting, the​ break-even point in dollars​ = ​$ 1500 ​(enter your response as a whole​ number).

Answer 1

a) Break even point in units = 2000 Units

b) Break even point in Dollars = $1500

Step-by-step explanation:

Break even point is the point of no profit no loss. It is where revenue equals total cost.

a)

To calculate break even point in units, we first need to find out the contribution margin per unit (CM per unit).

CM per unit = Selling price - variable cost = 0.75 - 0.5 = $0.25

The break even point in units = 500 / 0.25 = 2000 units

b) To calculate the break even point in dollars, first we need to calculate the contribution to sales ratio.

Contribution to Sales ratio = 0.25/0.75 = 1/3

Break even in dollars = 500 / (1/3) = $1500