Question

Assume a fixed cost for an investment in a piece of equipment of $120,000, a variable cost to produce each unit of product with the equipment at $40, and a selling price for the finished product of $50. What is the break-even in units that would have to be produced and sold for total revenue to equal total cost?

Answer 1

12,000 UNITS

Step-by-step explanation:

The BEP which is the break even point is the point where the company's sales or revenue generated is equal to the cost incurred.

As such, the BEP is the number of units that must be sold for the company to make neither a profit nor a loss.

Both sales and variable cost are dependent on the number of units sold. The total cost is the sum of the variable and the fixed cost.

Let the units required to breakeven be y

50y = 40y + 120,000

10y = 120,000

y = 12,000

Answer 2

The answer is 12,000 units

Step-by-step explanation:

Break-even point is the point at which a business will neither make a profit nor a loss. It is also the point at which total revenue equals total cost.

The formula is:

fixed cost / contribution margin

Where contribution margin is the selling price minus variable cost.

So contribution margin equals:

$50 - $40

$10

Therefore, break-even point will be:

$120,000/$10

12,000 units.

This means the company must produce 12,000 units of the product to break even