Corner Cupcakes Co. is selling cupcakes for $8 for a box of one dozen. Corner has fixed costs equaling $60,000 per year, and its accountant has calculated the monthly break-even at 1,000 boxes sold. Which of the following statements is correct based on this information?

Question

Quizplus · Accepted Answer

Break-even is equal to the point at which sales in units multiplied by contribution margin equals total fixed costs. If fixed costs equal $60,000 per year, then they equal $5,000 per month ($60,000 ÷ 12 months). If the break-even point is equal to 1,000 boxes per month, then contribution margin is equal to $5,000 ÷ 1,000 = $5 per box. This means that variable costs are equal to the selling price per box of $8 minus the contribution margin of $5, or $3 per box. Therefore, variable costs equal $3 per box, and contribution margin is $5 per unit.